SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

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For 9MFY18 (ending 30 Sep) DBS, OCBC &amp; UOB have averaged 25% YoY net profit growth. Combined, the three banks reported total income (pre allowances, expenses &amp; taxes) of S$24.2 billion for the 9MFY18, up from S$22.1 billion in 9MFY17. 
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The three banks averaged a 0.1% total return in the 2018 YTD, which brings their average annualised five year total returns to 8.9%. Retail Investors were net buyers of the three banks over the first 10M of 2018, contributing S$1.2 billion of investment inflow. 
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The three banks averaged a 1.79% Net Interest Margin for 9MFY18, up 8 bps from 1.71% for 9MFY17. Combined Wealth Management Fees &amp; Income for the three banks grew 15% to S$2.05 billion in 9MFY18 from S$1.78 billion in 9MFY17. 
	 </li>
	<li>Effective 7 Nov, SGX is launching Long and Short 5x Daily Leveraged Certificates on DBS, OCBC, UOB, in addition to DLCs on three other SGX-listed stocks. DLCs will also be variable on four HKEx-listed stocks - Tencent, Ping An, CNOOC &amp; PetroChina.</li>
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Singapore’s listed Bank Sector consists of DBS Group Holding ("DBS"), Oversea-Chinese Banking Corporation  ("OCBC") and United Overseas Bank ("UOB"). Together the three banks maintain a combined market capitalisation of S$154 billion.

The three banks have recently reported 3QFY18 and 9MFY18 earnings. For their 9MFY18 (ending 30 Sep) DBS, OCBC &amp; UOB have reported an average 25% YoY increase in net profit. As detailed in the table below, combined, the three banks reported total income (pre allowances, expenses, and taxes) of S$24.2 billion for the 9MFY18. This was up from S$22.1 billion in 9MFY17.
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 <img src="https://api2.sgx.com/sites/default/files/2019-01/feqdwqdqwd.PNG" alt="DBS, OCBC &amp; UOB: Income">
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 <div class="content-caption">DBS, OCBC &amp; UOB: Income</div>
Net interest income represents the difference between revenue generated from lending activities and the liabilities it pays to depositors. Combined, the quarterly net interest income for the three banks has gradually grown in recent years and has been consistently above S$4.0 billion for each quarter since the end of 2014. This has coincided with gradual increases of local interest rates as represented by the 1-month Swap Offer Rate (“SOR”) and 3-month Singapore Interbank Offered Rate (“SIBOR“).

Average 9MFY18 NIM Increased 8 bps YoY   

The average Net Interest Margin (“NIM”) for the three banks in 9MFY18 was up 8 basis points (“bps”) from 1.71% in 9MFY17 to 1.79% in 9MFY18. The FY17 NIM averaged 1.72% for the three banks, with the FY16 average NIM at 1.73%. NIM represents annualised net interest income as a percentage of total interest bearing assets.
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 <img src="https://api2.sgx.com/sites/default/files/2019-01/banks.PNG" alt="DBS, OCBC &amp; UOB: Net Interest Margins">
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 <div class="content-caption">DBS, OCBC &amp; UOB: Net Interest Margins</div>
The average Return on Equity (“ROE”) for the three banks stood at 12.1% for 9MFY18, up from 10.2% in 9MFY17. ROE measures a corporation's profitability by revealing how much earnings a business generates with the money shareholders have invested. DBS highlighted that the 12.4% ROE for 9MFY18 represented a decade high which was attributed to improved structural profitability as interest rates and allowances normalise.
<figure>
 <img src="https://api2.sgx.com/sites/default/files/2019-01/roe.PNG" alt="DBS, OCBC &amp; UOB: ROE">
 </figure>
 <div class="content-caption">DBS, OCBC &amp; UOB: ROE</div>
Banks Consolidate on Last Year’s Average 41.7% Total Return

The three banks have averaged a dividend-inclusive total return of 0.1% in the 2018 year-to-date, with net retail inflows of S$1.2 billion over the first 10 months of 2018. This has followed an average total return of 41.7% in 2017 for the three banks and net institutional inflows of S$3.4 billion in 2017. 

Over the past five years, the three banks have averaged 8.9% annualised total returns. The three banks have a long trading history on SGX, and have averaged annualised total returns of 12.8% over the past 20 years. For more details on the returns and financials of each of the banks tabled below, visit sgx.com/stockfacts.
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 <img src="https://api2.sgx.com/sites/default/files/2019-01/DES.PNG" alt="DBS, OCBC &amp; UOB: Returns">
 </figure>
 <div class="content-caption">DBS, OCBC &amp; UOB: Returns</div>
The three banks pay dividends on a semi-annual basis and average a 4.0% indicative dividend yield based on recent distributions.

Last year the three banks averaged a 41.7% total return which corresponded with S$3.4 billion of net institutional inflow over 2017. By comparison the 20 largest capitalised banks listed across Asia Pacific, which includes DBS, have averaged a 2.7% decline in total return in the 2018 year through to 2 November, and five year average annualised total returns of 8.0% (in SGD terms).

P/B Valuations

The average price-to-book (P/B) of DBS, OCBC and UOB banks is currently 1.24x, which ranges from 1.16x for OCBC to 1.34x for DBS. By comparison the five year average P/B for the three banks is 1.29x, compared to 1.26x for the 20 largest capitalised banks listed across Asia Pacific.  The P/B ratio compares the company’s value on the market relative to its book value.

2019 Outlooks Include Regional Expansion &amp; Digital Investments

In the last financial year, the three Banks on average reported 61% of their revenue to Singapore. Combined Wealth Management Fees and Income (segmented under Net Fee and Commission Income) for DBS, OCBC and UOB grew 15% to S$2.05 billion in 9MFY18 from S$1.78 billion in 9MFY17.

<ul>
<li>DBS CEO Piyush Gupta noted as DBS celebrates its our fiftieth anniversary, the Bank was pleased to be named Best Bank in the World by Global Finance and World’s Best Digital Bank by Euromoney, adding that the bank is well positioned to continue capitalising on Asia’s long-term prospects while navigating short-term uncertainties. For more details click <a href="http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&amp;B=AnnouncementLast3MonthsSecurity&amp;F=NECB4VUWTLJCXA9T&amp;H=065f493b1ef461b66d66f37685a4bb63603f798933b3f56aed118ca59dcaef46&amp;fileId=3Q18_press_statement.pdf">here</a>.</li>
	<li>OCBC CEO Samuel Tsien noted that OCBC’s technology and digital investments have strongly contributed to its franchise expansion, in addition to the deepening of relationships and the increase in customer loyalty. Mr Tsien added that despite the weakened regional market sentiments as a result of global trade tensions, the growth in its wealth management franchise continued, with sustained net new money inflows that drove its assets under management to an all-time high. For more details click <a href="http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&amp;B=AnnouncementLast3MonthsSecurity&amp;F=US29BVLNCVSSLV3Q&amp;H=f8d73718b838a4932fac9bd67505e9947383f57ea5c314ea341013729df10e3d&amp;fileId=OCBC_3Q18_Financial_Results.pdf">here</a>.</li>
	<li>UOB Deputy Chairman and CEO Wee Ee Cheong maintained that, backed by its confidence in the medium- to long-term prospects of Asia, combined with its considered risk-focused approach, UOB will invest in regional connectivity and digital capabilities to serve business and to turn ideas into distinctive experiences that matter to its customers. Mr Wee added, this includes collaborating with ecosystem partners to create financial solutions for its customers need and to help enterprises grow”. For more details click <a href="http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&amp;B=AnnouncementLast3MonthsSecurity&amp;F=CNHTV1YOUM8ATZRC&amp;H=d94d97c326a478ddab31ef795d2dce519d3db4c93efb4ab9849eaa0532c1159e&amp;fileId=3Q18%20News%20Release.pdf">here</a>.</li>
</ul>
New Portfolio Products on all Three Banks

<ul>
<li>Effective 7 November, SGX is launching Long and Short 5x Daily Leveraged Certificates (“DLCs”) on DBS, OCBC, UOB, in addition to DLCS on three other SGX-listed stocks. DLCs will also be available on four HKEx-listed stocks - Tencent, Ping An, CNOOC and PetroChina. For more details click <a href="http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/mu_05112018_1">here</a>.</li>
	<li>With five times leverage on the daily performance of the underlying stock, the DLCs provide investors with the ability to make enhanced returns within a short period of time but also the risk of substantial losses if the underlying stock moves against the investor.</li>
	<li>DLCs are Specified Investment Products as they are more complex in nature than simple equities and thus only suitable for investors who possess the investment knowledge of more complex products and have a high risk tolerance.</li>
</ul>
Did You Know?

Thursday 29 November will mark 50 years since South East Asia’ largest capitalised stock, DBS Group Holdings,  received official quotation on the Stock Exchange of Malaysia and Singapore (on 29 November 1968).
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For 9MFY18 (ending 30 Sep) DBS, OCBC &amp; UOB have averaged 25% YoY net profit growth. Combined, the three banks reported total income (pre allowances, expenses &amp; taxes) of S$24.2 billion for the 9MFY18, up from S$22.1 billion in 9MFY17. 
	 
	
The three banks averaged a 0.1% total return in the 2018 YTD, which brings their average annualised five year total returns to 8.9%. Retail Investors were net buyers of the three banks over the first 10M of 2018, contributing S$1.2 billion of investment inflow. 
	 
	
The three banks averaged a 1.79% Net Interest Margin for 9MFY18, up 8 bps from 1.71% for 9MFY17. Combined Wealth Management Fees &amp; Income for the three banks grew 15% to S$2.05 billion in 9MFY18 from S$1.78 billion in 9MFY17. 
	 
	Effective 7 Nov, SGX is launching Long and Short 5x Daily Leveraged Certificates on DBS, OCBC, UOB, in addition to DLCs on three other SGX-listed stocks. DLCs will also be variable on four HKEx-listed stocks - Tencent, Ping An, CNOOC &amp; PetroChina.

Singapore’s listed Bank Sector consists of DBS Group Holding ("DBS"), Oversea-Chinese Banking Corporation  ("OCBC") and United Overseas Bank ("UOB"). Together the three banks maintain a combined market capitalisation of S$154 billion.

The three banks have recently reported 3QFY18 and 9MFY18 earnings. For their 9MFY18 (ending 30 Sep) DBS, OCBC &amp; UOB have reported an average 25% YoY increase in net profit. As detailed in the table below, combined, the three banks reported total income (pre allowances, expenses, and taxes) of S$24.2 billion for the 9MFY18. This was up from S$22.1 billion in 9MFY17.

      
    
    DBS, OCBC &amp; UOB: Income
Net interest income represents the difference between revenue generated from lending activities and the liabilities it pays to depositors. Combined, the quarterly net interest income for the three banks has gradually grown in recent years and has been consistently above S$4.0 billion for each quarter since the end of 2014. This has coincided with gradual increases of local interest rates as represented by the 1-month Swap Offer Rate (“SOR”) and 3-month Singapore Interbank Offered Rate (“SIBOR“).

Average 9MFY18 NIM Increased 8 bps YoY   

The average Net Interest Margin (“NIM”) for the three banks in 9MFY18 was up 8 basis points (“bps”) from 1.71% in 9MFY17 to 1.79% in 9MFY18. The FY17 NIM averaged 1.72% for the three banks, with the FY16 average NIM at 1.73%. NIM represents annualised net interest income as a percentage of total interest bearing assets.

      
    
    DBS, OCBC &amp; UOB: Net Interest Margins
The average Return on Equity (“ROE”) for the three banks stood at 12.1% for 9MFY18, up from 10.2% in 9MFY17. ROE measures a corporation's profitability by revealing how much earnings a business generates with the money shareholders have invested. DBS highlighted that the 12.4% ROE for 9MFY18 represented a decade high which was attributed to improved structural profitability as interest rates and allowances normalise.

      
    
    DBS, OCBC &amp; UOB: ROE
Banks Consolidate on Last Year’s Average 41.7% Total Return

The three banks have averaged a dividend-inclusive total return of 0.1% in the 2018 year-to-date, with net retail inflows of S$1.2 billion over the first 10 months of 2018. This has followed an average total return of 41.7% in 2017 for the three banks and net institutional inflows of S$3.4 billion in 2017. 

Over the past five years, the three banks have averaged 8.9% annualised total returns. The three banks have a long trading history on SGX, and have averaged annualised total returns of 12.8% over the past 20 years. For more details on the returns and financials of each of the banks tabled below, visit sgx.com/stockfacts.

      
    
    DBS, OCBC &amp; UOB: Returns
The three banks pay dividends on a semi-annual basis and average a 4.0% indicative dividend yield based on recent distributions.

Last year the three banks averaged a 41.7% total return which corresponded with S$3.4 billion of net institutional inflow over 2017. By comparison the 20 largest capitalised banks listed across Asia Pacific, which includes DBS, have averaged a 2.7% decline in total return in the 2018 year through to 2 November, and five year average annualised total returns of 8.0% (in SGD terms).

P/B Valuations

The average price-to-book (P/B) of DBS, OCBC and UOB banks is currently 1.24x, which ranges from 1.16x for OCBC to 1.34x for DBS. By comparison the five year average P/B for the three banks is 1.29x, compared to 1.26x for the 20 largest capitalised banks listed across Asia Pacific.  The P/B ratio compares the company’s value on the market relative to its book value.

2019 Outlooks Include Regional Expansion &amp; Digital Investments

In the last financial year, the three Banks on average reported 61% of their revenue to Singapore. Combined Wealth Management Fees and Income (segmented under Net Fee and Commission Income) for DBS, OCBC and UOB grew 15% to S$2.05 billion in 9MFY18 from S$1.78 billion in 9MFY17.


DBS CEO Piyush Gupta noted as DBS celebrates its our fiftieth anniversary, the Bank was pleased to be named Best Bank in the World by Global Finance and World’s Best Digital Bank by Euromoney, adding that the bank is well positioned to continue capitalising on Asia’s long-term prospects while navigating short-term uncertainties. For more details click here.
	OCBC CEO Samuel Tsien noted that OCBC’s technology and digital investments have strongly contributed to its franchise expansion, in addition to the deepening of relationships and the increase in customer loyalty. Mr Tsien added that despite the weakened regional market sentiments as a result of global trade tensions, the growth in its wealth management franchise continued, with sustained net new money inflows that drove its assets under management to an all-time high. For more details click here.
	UOB Deputy Chairman and CEO Wee Ee Cheong maintained that, backed by its confidence in the medium- to long-term prospects of Asia, combined with its considered risk-focused approach, UOB will invest in regional connectivity and digital capabilities to serve business and to turn ideas into distinctive experiences that matter to its customers. Mr Wee added, this includes collaborating with ecosystem partners to create financial solutions for its customers need and to help enterprises grow”. For more details click here.

New Portfolio Products on all Three Banks


Effective 7 November, SGX is launching Long and Short 5x Daily Leveraged Certificates (“DLCs”) on DBS, OCBC, UOB, in addition to DLCS on three other SGX-listed stocks. DLCs will also be available on four HKEx-listed stocks - Tencent, Ping An, CNOOC and PetroChina. For more details click here.
	With five times leverage on the daily performance of the underlying stock, the DLCs provide investors with the ability to make enhanced returns within a short period of time but also the risk of substantial losses if the underlying stock moves against the investor.
	DLCs are Specified Investment Products as they are more complex in nature than simple equities and thus only suitable for investors who possess the investment knowledge of more complex products and have a high risk tolerance.

Did You Know?

Thursday 29 November will mark 50 years since South East Asia’ largest capitalised stock, DBS Group Holdings,  received official quotation on the Stock Exchange of Malaysia and Singapore (on 29 November 1968).



DBS, OCBC & UOB Avg 25% Net Profit Growth in 9MFY18

Singapore

Design Studio Group Ltd manufactures, supplies, and installs panelling products for residential property developments.  The Company also provides interior fitting-out services for residential, commercial, retail properties.  Design Studio is distributors of the imported brands of complementary products and exports its PANELZ products to overseas markets.

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DBS, OCBC & UOB Avg 25% Net Profit Growth in 9MFY18

For 9MFY18 (ending 30 Sep) DBS, OCBC & UOB have averaged 25% YoY net profit growth. Combined, the three banks reported total income (pre...

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