- EPS growth prospects plus potential fund inflows from oil & gas sector. Raise EPS by up to 10% and TPs.
- UOB could be re-rated further after management assurances. Weaker liquidity profile well-cited. Upgrade to BUY from HOLD.
- Upgrade sector to OVERWEIGHT from Neutral. DBS our top pick, followed by UOB. Still cautious on OCBC.
We believe a sector re-rating is afoot after three quarters of positive earnings surprises, from strengthening NIMs and asset resilience. Earlier wariness over China exposures proved unfounded. As the oil & gas sector’s outlook dims, we expect banks to benefit from fund reallocations, given a dearth of catalysts for the other major sectors. Higher interest rates starting mid-2015 should provide another source of catalysts. These are behind our sector upgrade to OVERWEIGHT from Neutral.
Upgrade UOB to BUY; DBS still top pick
We believe the market has priced in UOB’s less-favourable funding profile. We cut its NIMs as it is not that well-positioned for higher rates. Still, we anticipate catalysts from stronger deposit growth and improving housing-loan quality. DBS remains our top pick as it should be best-positioned to benefit from rising rates. We stay cautious on OCBC.
Raising TPs and EPS. We raise FY14E-16E EPS by up to 10%, for better NIMs and non-interest income. We also incorporate Wing Hang Bank for OCBC. We bump up TPs for all three, without changes to our valuation methodologies.
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