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.

Asia’s leading multi-asset exchange

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

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

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<li>
DBS, OCBC &amp; UOB have averaged a 5% return in the QTD on net institutional inflow close to S$200 million, boosting their 2019 YTD total return to 12%. By comparison, APAC’s largest 100 capitalised banks generated a median 4% QTD return and 7% total return in the 2019 YTD. 
	 </li>
	<li>
For 9MFY19, the three banks averaged 8% YoY growth in net profit, ranging from 2% for OCBC to 13% for DBS. The average annualised ROE for the three banks in 9MFY19 was 12.4%, compared to 11.6% for FY18, and 10.3% for FY17.  
	 </li>
	<li>The three banks averaged 13% YoY growth in 9MFY19 wealth management income, while averaging annualised 9MFY19 NIM of 1.82%, up 3 bps YoY. The banks average a 4.2% dividend yield, with P/B valuations in-line with their global counterparts. </li>
</ul>
 

DBS Group Holdings ("DBS"), Oversea-Chinese Banking Corp ("OCBC") and United Overseas Bank ("UOB") have averaged a 5% return in the current quarter-to-date, bringing their average 2019 year-to-date total return to 12%. The three banks have outpaced Asia Pacific’s largest 100 banks by market capitalisation in the 2019 year-to-date by both average and median measures.

All three banks have also been recipients of net institutional inflow in the current quarter through to the close of Nov 12, which was a combined S$197 million. This has reduced the net institutional outflow of the three banks in the 2019 year-to-date to S$341 million.
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 <img src='https://api2.sgx.com/sites/default/files/2019-11/Average%20Total%20Returns%20Banks.PNG' alt='Average Total Returns Banks' />
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 <div class='content-caption'>Average Total Returns Banks</div>
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Note the median total returns of the three Singapore banks are 5% for QTD, 15% for YTD and 8% for 5 year annualised. 
Source :Thomson Reuters, Bloomberg (Data as of 12 November 2019) 
 

While Asia Pacific’s largest 100 banks by market capitalisation have generated an 7% median total return in the 2019 year-to-date, they have trailed the largest 100 global banks by market capitalisation, which generated a median total return of 16%.  A similar trailing comparative performance was observed among industrial stocks, with more parallel performances observed across the consumer and technology stocks. The IMF noted last month that although the Asia Pacific region is still the world’s fastest growing major region, contributing more than two-thirds to global growth, near-term prospects have deteriorated noticeably since the April 2019 World Economic Outlook, with risks skewed to the downside. 
 

The average annualised total returns of DBS, OCBC &amp; UOB over the past five years was 8%, which outpaced the median return for the 100 largest capitalised banks of the region and world. 
 

Over the five year period, the three banks all grew their net interest income. In the 3QFY14 the combined net interest income of the three banks was S$4.0 billion, which had gradually grown to S$5.7 billion in 3QFY19. For their 9MFY19 (ended 30 Sep) DBS, OCBC and UOB have reported average YoY net profit growth of 8% to a combined S$11.85 billion.

 

<table class="table table-striped"><tbody>
<tr>
<td>
			 
			</td>
			<td>
			Net Profit Growth 9MFY19
			</td>
			<td>
			Net Profit Growth FY18
			</td>
			<td>
			Net Profit Growth FY17
			</td>
			<td>
			Annualised ROE 

			9MFY19
			</td>
			<td>
			ROE 

			FY18
			</td>
			<td>
			ROE FY17
			</td>
		</tr>
<tr>
<td>
			<a href="https://links.sgx.com/1.0.0/corporate-announcements/DWNBBHCG2VK4VEDZ/642832ce6cff0623a7dbe9587b0c3e2f0082538f9fcfb50972cfba868d7f389b">DBS</a>
			</td>
			<td>
			13%
			</td>
			<td>
			28%
			</td>
			<td>
			4%
			</td>
			<td>
			13.6%
			</td>
			<td>
			12.1%
			</td>
			<td>
			9.7%
			</td>
		</tr>
<tr>
<td>
			<a href="https://links.sgx.com/1.0.0/corporate-announcements/6OX4XYWUZYVKNCNL/d2aa2e3619a31594bc38fb7fa1f35396011d521b436f7345fb07672fa571fa8c">OCBC</a>
			</td>
			<td>
			2%
			</td>
			<td>
			11%
			</td>
			<td>
			19%
			</td>
			<td>
			11.6%
			</td>
			<td>
			11.5%
			</td>
			<td>
			11.0%
			</td>
		</tr>
<tr>
<td>
			<a href="https://links.sgx.com/1.0.0/corporate-announcements/PCV9AVD7O63G8UOA/dc8d3bbf9da64f43b90b8c012f7bb2dbd06f69a3fb292b48e837f41b38275662">UOB</a>
			</td>
			<td>
			8%
			</td>
			<td>
			18%
			</td>
			<td>
			9%
			</td>
			<td>
			11.9%
			</td>
			<td>
			11.3%
			</td>
			<td>
			10.2%
			</td>
		</tr>
<tr>
<td>
			Average
			</td>
			<td>
			8%
			</td>
			<td>
			19%
			</td>
			<td>
			11%
			</td>
			<td>
			12.4%
			</td>
			<td>
			11.6%
			</td>
			<td>
			10.3%
			</td>
		</tr>
</tbody></table>
Source: Recent Financial Statements (click company names for full details) 
 

Wealth Management Segments Average 13% YoY Growth in 9MFY19

As discussed in greater detail <a href="https://www.mas.gov.sg/development/wealth-management">here</a>, Singapore has established itself as one of the leading private banking and wealth management centres globally and in Asia with the breadth and depth of institutions providing HNWIs access to global and regional financial markets, while providing a full suite of wealth management services. 
 

<ul>
<li>For DBS, wealth management income for 9MFY19 was reported to be up 16% to S$2.36 billion from S$2.03 billion a year ago, as AUM increased 9% to $241 billion. 
	 </li>
	<li>For OCBC, overall wealth management income for 9MFY19, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, rose 10% to a record S$2.46 billion, up from S$2.24 billion a year ago. In addition the wealth management franchise contributed 31% to the Group’s total income as compared with 30% in 9MFY18. 
	 </li>
	<li>For UOB, wealth management income for 9MFY19 totalled S$479 million which was up 12% from S$429 million for 9MFY18. 
	 </li>
</ul>
Average Indicative Dividend Yield at 4.2% &amp; In-line P/B Valuations

The three banks maintain an average indicative yield of 4.2% which accounts for more of the comparative high dividend yield appeal of the Straits Times Index (“STI”) given their high weightage, that represents represent close to 40% of the Index Free Float. The median indicative dividend yield of Asia Pacific’s 100 largest banks by market capitalisation is currently 3.7%.

 
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 <img src='https://api2.sgx.com/sites/default/files/2019-11/Current%20Indicative%20DivYields.PNG' alt='Current Indicative Dividend Yields' />
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 <div class='content-caption'>Current Indicative Dividend Yields</div>
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Source :Thomson Reuters, Bloomberg (Data as of 12 November 2019) 
 

The average price-to-book (P/B) of the three banks is currently 1.2x, which ranges from 1.1x for OCBC to 1.4x for DBS. By comparison the five year average P/B ratio for the three banks is also 1.2x with the average P/B of the three banks at 1.4x five years ago.

The current P/B ratios are in-line with global valuations, with the global 100 largest banks by market capitalisation maintaining median P/B ratios of 1.2x for the past 12 months and past five years. P/B ratios compare the company’s value on the market relative to its book value.

 

Average 9MFY19 NIM Increased 3 bps from 9MFY18  

The average Net Interest Margin (“NIM”) for the three banks for the 9MFY19 period was 1.82%, up an average 3 basis points from 1.79% in 9MFY18. The FY18 NIM also averaged 1.79% for the three banks and was up from 1.72% in FY17. 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/2019-11/NIM%20Banks%20Charts_0.PNG' alt='Net Interest Margins ' />
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 <div class='content-caption'>Net Interest Margins </div>
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Source: Recent Financial Statements

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, and then consistently above S$5.0 billion for each quarter since 2QFY18. This 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”). SIBOR reflects the benchmark interest rates in Singapore, while the SOR is a synthetic rate that takes into account exchange rate of the Singapore Dollar to the US Dollar.
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2019-11/Net%20Interest%20Income%20Banks_0.PNG' alt='Quarterly Net Interest Income' />
 </figure>
 <div class='content-caption'>Quarterly Net Interest Income</div>
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Source: Recent Financial Statements 
 

As discussed above, near-term prospects for regional growth have deteriorated noticeably since April. The regional slowdown has also impacted the US economy, and like a number of Central Banks across the world the US Federal Reserve has introduced expansionary policy measures.

The recent SOR and SIBOR decline in 3QFY19, as illustrated above, was on the back of successive interest rate cuts by the US Federal Reserve on July 31 and September 18. A further third cut Fed Funds rate on October 30 has seen the SOR decline from 1.63% on September 30 to 1.41% at present, and the SIBOR decline from 1.88% on September 30 to 1.77% at present.

In addition on October 14, as expected by the consensus, the MAS slightly reduced the rate of appreciation of the S$ Nominal Effective Exchange Rate (“S$NEER”) policy band with no change to the width of the policy band and the level at which it is centered. Consensus estimates are that the Federal Reserve has now completed its mid-cycle rate cuts with a less than one-in-the chance it will cut rates on December 11.
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DBS, OCBC &amp; UOB have averaged a 5% return in the QTD on net institutional inflow close to S$200 million, boosting their 2019 YTD total return to 12%. By comparison, APAC’s largest 100 capitalised banks generated a median 4% QTD return and 7% total return in the 2019 YTD.  
	 
	
For 9MFY19, the three banks averaged 8% YoY growth in net profit, ranging from 2% for OCBC to 13% for DBS. The average annualised ROE for the three banks in 9MFY19 was 12.4%, compared to 11.6% for FY18, and 10.3% for FY17.  
	 
	The three banks averaged 13% YoY growth in 9MFY19 wealth management income, while averaging annualised 9MFY19 NIM of 1.82%, up 3 bps YoY. The banks average a 4.2% dividend yield, with P/B valuations in-line with their global counterparts. 

 

DBS Group Holdings ("DBS"), Oversea-Chinese Banking Corp ("OCBC") and United Overseas Bank ("UOB") have averaged a 5% return in the current quarter-to-date, bringing their average 2019 year-to-date total return to 12%. The three banks have outpaced Asia Pacific’s largest 100 banks by market capitalisation in the 2019 year-to-date by both average and median measures.

All three banks have also been recipients of net institutional inflow in the current quarter through to the close of Nov 12, which was a combined S$197 million. This has reduced the net institutional outflow of the three banks in the 2019 year-to-date to S$341 million.



      
    
    Average Total Returns Banks


Note the median total returns of the three Singapore banks are 5% for QTD, 15% for YTD and 8% for 5 year annualised. 
Source :Thomson Reuters, Bloomberg (Data as of 12 November 2019) 
 

While Asia Pacific’s largest 100 banks by market capitalisation have generated an 7% median total return in the 2019 year-to-date, they have trailed the largest 100 global banks by market capitalisation, which generated a median total return of 16%.  A similar trailing comparative performance was observed among industrial stocks, with more parallel performances observed across the consumer and technology stocks. The IMF noted last month that although the Asia Pacific region is still the world’s fastest growing major region, contributing more than two-thirds to global growth, near-term prospects have deteriorated noticeably since the April 2019 World Economic Outlook, with risks skewed to the downside. 
 

The average annualised total returns of DBS, OCBC &amp; UOB over the past five years was 8%, which outpaced the median return for the 100 largest capitalised banks of the region and world. 
 

Over the five year period, the three banks all grew their net interest income. In the 3QFY14 the combined net interest income of the three banks was S$4.0 billion, which had gradually grown to S$5.7 billion in 3QFY19. For their 9MFY19 (ended 30 Sep) DBS, OCBC and UOB have reported average YoY net profit growth of 8% to a combined S$11.85 billion.

 




			 
			
			
			Net Profit Growth 9MFY19
			
			
			Net Profit Growth FY18
			
			
			Net Profit Growth FY17
			
			
			Annualised ROE 

			9MFY19
			
			
			ROE 

			FY18
			
			
			ROE FY17
			
		


			DBS
			
			
			13%
			
			
			28%
			
			
			4%
			
			
			13.6%
			
			
			12.1%
			
			
			9.7%
			
		


			OCBC
			
			
			2%
			
			
			11%
			
			
			19%
			
			
			11.6%
			
			
			11.5%
			
			
			11.0%
			
		


			UOB
			
			
			8%
			
			
			18%
			
			
			9%
			
			
			11.9%
			
			
			11.3%
			
			
			10.2%
			
		


			Average
			
			
			8%
			
			
			19%
			
			
			11%
			
			
			12.4%
			
			
			11.6%
			
			
			10.3%
			
		

Source: Recent Financial Statements (click company names for full details) 
 

Wealth Management Segments Average 13% YoY Growth in 9MFY19

As discussed in greater detail here, Singapore has established itself as one of the leading private banking and wealth management centres globally and in Asia with the breadth and depth of institutions providing HNWIs access to global and regional financial markets, while providing a full suite of wealth management services. 
 


For DBS, wealth management income for 9MFY19 was reported to be up 16% to S$2.36 billion from S$2.03 billion a year ago, as AUM increased 9% to $241 billion. 
	 
	For OCBC, overall wealth management income for 9MFY19, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, rose 10% to a record S$2.46 billion, up from S$2.24 billion a year ago. In addition the wealth management franchise contributed 31% to the Group’s total income as compared with 30% in 9MFY18. 
	 
	For UOB, wealth management income for 9MFY19 totalled S$479 million which was up 12% from S$429 million for 9MFY18. 
	 

Average Indicative Dividend Yield at 4.2% &amp; In-line P/B Valuations

The three banks maintain an average indicative yield of 4.2% which accounts for more of the comparative high dividend yield appeal of the Straits Times Index (“STI”) given their high weightage, that represents represent close to 40% of the Index Free Float. The median indicative dividend yield of Asia Pacific’s 100 largest banks by market capitalisation is currently 3.7%.

 



      
    
    Current Indicative Dividend Yields


Source :Thomson Reuters, Bloomberg (Data as of 12 November 2019) 
 

The average price-to-book (P/B) of the three banks is currently 1.2x, which ranges from 1.1x for OCBC to 1.4x for DBS. By comparison the five year average P/B ratio for the three banks is also 1.2x with the average P/B of the three banks at 1.4x five years ago.

The current P/B ratios are in-line with global valuations, with the global 100 largest banks by market capitalisation maintaining median P/B ratios of 1.2x for the past 12 months and past five years. P/B ratios compare the company’s value on the market relative to its book value.

 

Average 9MFY19 NIM Increased 3 bps from 9MFY18  

The average Net Interest Margin (“NIM”) for the three banks for the 9MFY19 period was 1.82%, up an average 3 basis points from 1.79% in 9MFY18. The FY18 NIM also averaged 1.79% for the three banks and was up from 1.72% in FY17. NIM represents annualised net interest income as a percentage of total interest bearing assets.



      
    
    Net Interest Margins 


Source: Recent Financial Statements

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, and then consistently above S$5.0 billion for each quarter since 2QFY18. This 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”). SIBOR reflects the benchmark interest rates in Singapore, while the SOR is a synthetic rate that takes into account exchange rate of the Singapore Dollar to the US Dollar.



      
    
    Quarterly Net Interest Income


Source: Recent Financial Statements 
 

As discussed above, near-term prospects for regional growth have deteriorated noticeably since April. The regional slowdown has also impacted the US economy, and like a number of Central Banks across the world the US Federal Reserve has introduced expansionary policy measures.

The recent SOR and SIBOR decline in 3QFY19, as illustrated above, was on the back of successive interest rate cuts by the US Federal Reserve on July 31 and September 18. A further third cut Fed Funds rate on October 30 has seen the SOR decline from 1.63% on September 30 to 1.41% at present, and the SIBOR decline from 1.88% on September 30 to 1.77% at present.

In addition on October 14, as expected by the consensus, the MAS slightly reduced the rate of appreciation of the S$ Nominal Effective Exchange Rate (“S$NEER”) policy band with no change to the width of the policy band and the level at which it is centered. Consensus estimates are that the Federal Reserve has now completed its mid-cycle rate cuts with a less than one-in-the chance it will cut rates on December 11.



DBS, OCBC & UOB Average 8% Net Profit Growth in 9MFY19