Upgrading sector view to Neutral
We upgrade our sector view on Singapore banks to Neutral. Profit
progression will be supported by better-than-expected net interest
margins as loan spreads widen. We upgrade UOB to Hold but
reiterate our Sell on DBS due to its gearing to low Sibor.
Key valuation assumptions
FY09F
Name Rating
Current
price
Target
price
Up/
downside P/E
EPS
growth P/BVPS ROE Yield
DBS Sell 19.42 16.00 -17.6% 11.6 -0.4% 1.3 11.7% 4.3%
OCBC Hold 8.72 8.00 -8.3% 12.9 8.1% 1.5 12.5% 3.8%
UOB Hold 20.20 20.00 -1.0% 11.8 12.7% 1.6 14.0% 4.7%
Priced intraday 30 May 2008
Source: ABN AMRO forecasts
Upgrading Singapore sector to Neutral
We upgrade our sector view on Singapore banks to Neutral. We now expect 8.4% net
profit progression in FY08 and 6.9% in FY09 (vs 0.3% and 5.8% forecast before). We
think the consensus earnings downgrade cycle (Bloomberg consensus earnings are
down 4.7% for FY08 and 5.4% for FY09 since the start of 2008) is bottoming out.
Despite this, we believe sector performance will be capped by its trading range and
relatively rich earnings valuations (12.8x 09F EPS for 7.2% EPS growth vs 11.1x for
17.5% EPS growth for our regional universe). Downside support is likely to come
from the Singapore sector's perceived low risk and low book valuations (1.5x 09F for
11.8% ROE versus 2.0x for 18.8% ROE for our regional universe).
NIMs hold up better than expected - except at DBS
The reason for our sector upgrade is that net interest margins (NIMs) are holding up
better than we expected at the start of the year. We now think that OCBC and UOB
can show NIM improvements in the region of 20bps over the next two years,
compared to declines before. Main reasons are: 1) an increase in loan spreads (due
credit tightening); 2) an improving deposit mix (sector low-cost deposits have risen
to 40% in 1Q08 from 36% at 4Q07); and 3) better opportunities for gapping profits
as the short end of the Singapore yield curve steepened. In our view, other earnings
drivers fail to excite.
Stock specifics
We raise UOB to Hold (from Sell) with a new target price of S$20 (from S$17). We
also raise our earnings on UOB by 9.5% for the next three years. Of the three banks,
UOB is likely to show the best margin improvement (23bp in FY08F and FY09F) as a
result of its cautious approach to the lending and pricing of its back-book. This will
drive top-of-the-sector earnings growth of 12.1% in 08F and 12.6% in 09F. We
reiterate our Hold rating (target price S$8) on OCBC after minor earnings
adjustments. We reiterate our Sell rating on DBS (target price S$16) primarily due to
its negative gearing to low Sibor.
Produced by: ABN AMRO
Asia Securities
(Singapore) Pte Ltd
Neutral
Sector relative to market
www.abnamroresearch.com
Analysts
Trevor Kalcic, CFA
Singapore
+65 6518 7997
trevor.kalcic@sg.abnamro.com
Simon Ho, CFA
Hong Kong
+852 2700 5160
simon.ho@hk.abnamro.com
Permit No. MICA (P) 210/06/2007, Level 21, One Raffles Quay, South Tower, 048583,
Singapore

Contents
B A N K S 3 0 M A Y 2 0 0 8 2
I N V E S T M E N T V I E W
Upgrading sector view to neutral 3
We upgrade our sector view on Singapore banks to Neutral from Underweight. We
see the consensus downgrade cycle ending but see no reason for continued sector
out-performance.
NIMs an unexpected positive 6
Net interest margins are holding up better than we expected, with wider loan
spreads more than offsetting the impact of lower Sibor at OCBC and UOB, but not
at DBS. Other earnings drivers are slowing, as we expected.
Net interest margins to hold up better than expected 6
Other earnings drivers developing as expected 8
F O R E C A S T S & A S S U M P T I O N S
Forecasts and assumptions 11
S E C T O R P E R F O R M A N C E
Sector performance 16
C O M P A N Y P R O F I L E S
Company profiles 18
DBS Group Holdings 19
Oversea-Chinese Banking Corp 25
United Overseas Bank 32