Morgan Stanley's analysts have upgraded Singapore financials to overweight on the back of stronger return on equity, earnings visibility and relative dividend yield.
Even as banks in Singapore brace for the impact of lower rates on Net Interest Margin (NIM) and the impact of lower gross domestic product (GDP) on loan growth, Morgan Stanley analysts upgraded Singapore bank stocks on the back of stronger return on equity (ROE), earnings visibility and relative dividend yield.
The banks have performed well due to «undemanding valuation multiples at the beginning of the year, plus high capital ratios, which gave the market some comfort on dividend sustainability», the analysts wrote in the bank's 2020 Asia EM Equity Strategy Outlook report.
UOB Currently In Favor
UOB is currently Morgan Stanley's most preferred bank, stating that it has the most defensive business mix of the Singapore banks. UOB's third-quarter results beat market estimates with an 8 percent rise in third-quarter net profit to S$1.12 billion from S$1.04 billion a year ago.
Local brokerage Maybank Kim-Eng analyst Thilan Wickramasinghe is also in favor of UOB, saying that the bank is best placed to navigate the volatility especially with the situation in Hong Kong given the lender's strong capital and provision levels, as well as a historical track record of prudent management.
«Additionally, their integrated regional network may benefit from the ongoing capacity relocation from China to ASEAN providing the potential to surprise on the upside,» wrote Wickramasinghe in a research note in November.
Downward Pressure On Rates Fading
OCBC, on the other hand, is the least preferred bank by the U.S. bank, citing «the overhang of potential mergers and acquisitions on capital returns».
With the stabilization of GDP and less downward pressure on rates, Singapore banks, in general, are well supported and should benefit from growth in book value and dividend yields of around 4.5 percent, they noted.
