“Our analysis focuses on impact on card fees if 40-70% of expenditure in Singapore shifts from cash to cashless payments,” says Maybank analyst Ng Li Hiang. “Using some broad assumptions, we estimate this could raise banks’ FY17-19 profits by 3-9%.”
However, the analyst cautions that the analysis only considers banks’ cards fee.
“Potential disruption in the payments space can have wider negative implications to banks,” she says.
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To be sure, it is still unclear how payments will be disrupted by emerging fintech and e-commerce competitors. “Banks’ cards’ revenues may shrink should there be mass adoption of cashless payments through bank transfers/banking accounts, which usually do not incur additional charges for merchants and consumers,” Ng adds.
As such, Maybank is keeping its “neutral” stance on Singapore banks.
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Ng’s preferred pick for the sector is United Overseas Bank (UOB), due to its “better pricing discipline and sensitivity to re-pricing intervals.”
Maybank has a “buy” call on UOB, with a target price of $26.40.
Meanwhile, the brokerage has “hold” recommendations on DBS Group Holdings and Oversea-Chinese Banking Corp (OCBC), with target prices of $21.50 and $11.05, respectively.
As at 12.30pm, shares in UOB are trading 40 cents higher at $23.45 or 10.6 times FY17 estimated earnings; shares in DBS are trading 43 cents higher at $20.49 or around 10 times FY17 estimated earnings; and shares in OCBC are trading 15 cents higher at $11.10 or 11.2 times FY17 estimated earnings.
