Compiled by Navin Sregantan
SINGAPORE BANKS | POSITIVE (MAINTAINED)
Maybank Kim Eng, Sept 11
For banking cycles after the global financial crisis, we have trained Maybank Kim Eng's proprietary machine learning algorithms to identify the key variables that affect Singapore banks' non-performing loans (NPLs).
From our analysis, it appears that the pace of non-Singdollar loan growth, domestic inflation and rate of change in special-mention loans have the strongest influence in setting the direction of NPLs.
In contrast, interest rates, changes to unemployment and gross domestic product growth - variables that traditionally guide NPL forecasts - seem to have a lesser impact.
With overseas lending accounting for a large share of loan growth in the past three years, we think NPL risks may heighten as the cycle turns.
That said, strong capital and good dividend visibility should provide buffers.
We remain positive on Singapore banks.
United Overseas Bank's historically conservative balance sheet management, high provision coverage and 13.9 per cent common equity tier 1 should provide buffers against volatility. Coupled with dividend yields of more than 5 per cent, it is our top pick.
We have "hold" calls on DBS Group Holdings and OCBC Bank.
SEMBCORP INDUSTRIES | BUY (MAINTAINED)
SEPT 12 CLOSE: $2.19
TARGET PRICE: $3.20
DBS Equity Research, Sept 12
Sembcorp Industries offers a unique value proposition as a defensive utilities business and as a proxy to ride the cyclical offshore and marine (O&M) recovery.
Stripping out Sembcorp Marine's (SembMarine's) current valuation, the energy business is deeply undervalued at 0.5 time price-to-book value and five times price-to-earnings against a return on equity of 6 per cent to 7 per cent.
In fact, the stock is trading close to our $2 fair value of Sembcorp Industries' businesses excluding SembMarine, implying its marine business comes free.
We believe in the long-term growth prospects of Sembcorp Industries' energy arm, which has expanded its global footprint into key emerging markets - India, Bangladesh, Vietnam, and Myanmar.
We hold on to our belief of a potential merger between Keppel's O&M arm and SembMarine in view of keener competition in the sector. We believe a spin-off of its marine arm could re-rate SembMarine's undervalued utilities business that is being overshadowed by the cyclical marine business.
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