It wasn’t long ago that the Singapore investment community was abuzz with a pressing question: “With impending rate cuts, are banks still a worthwhile investment?”
I delved into this topic in my previous posts:
In short, I thought that the three Singapore banks will remain resilient despite the pressure from lower net interest margin (NIM).
The latest quarter earnings reports from DBS Group (SGX: D05), OCBC Ltd (SGX: O39), and United Overseas Bank Ltd (SGX: U11) exceeded my expectation.
While I correctly anticipated their strategy of compensating the lower NIM with increased loans, their astonishing surge in Non-interest income (Non-II) took me by surprise!
The shares of all three banks, especially DBS and UOB, jumped after the release of this set of remarkable results.
While I am pleased with the price appreciation, the question that comes to mind is if the three banks can sustain the momentum comes 2025?
Can they sustain the dividends?
There is no one better to find out than from the leaders themselves. Here are their notes.
In general, they pointed towards positive outlooks for 2025.
Although not explicitly mentioned in her slides, CEO Helen shared during the results briefing that profits are expected to remain stable, with potential growth in loans and Non-II. She intends to provide more details in the next quarter.
What stands out for me is DBS CEO’s comment that net profit after tax will be below 2024 level due to global minimum tax of 15%.
However, his guidance on net interest income (NII) and Non-II suggests that’s a conservative outlook. Moreover, DBS’s new share buyback programme could help maintain earnings per share (EPS).
I was curious about the specific impact of the global minimum tax on each bank. Based on my calculations from their 1H 2024 results, OCBC will be less affected as its tax rate is already at 14%.
As for UOB, it is already paying 17% tax, so there will not be any impact. This might explain why they did not highlight this in their briefings.
Given these positive outlooks, I believe the three banks are well-positioned for continued growth next year.
Coupled with the excess capital resulting from Basel IV implementation, I remain optimistic about potential dividend increases in 2025.
For fun, I’ve projected their FY 2024 net profit and 2025 dividends.
There’s no denying that after the significant share price appreciation this year, the banks are not as attractively priced now.
But their strong fundamentals and growth prospects still position them as compelling long-term investments.
I will continue to hold my current positions in these three banks.
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