Here's how OCBC's weak 2Q performance bolsters DBS and UOB's position

DBS and UOB hit new 52-week highs this week.

Here's more from Nomura:

Sing banks “delivered” on our expectations of subdued 2Q results i.e. downward revisions to full-year loan growth guidance (from low-mid teens, to high single digit-low teens), weaker NIM (significant downward revisions to FY12 y-y trajectory, vs. flat y-y previously) and significant pull-back in capital market-related drivers i.e. IB, broking and trading/investment income. Also as expected, undershooting credit costs was a key positive mitigating factor which, together with relatively resilient fee income and tight cost control, kept bottom-line earnings expectations on track.

within the Sing bank sector, a broadly weaker 2Q performance from OCBC SP (Neutral) has meant continuation of a lagging share price and reinforces our recommendation that investors switch into DBS SP (Buy) and UOB SP (Buy).

within ASEAN, we maintained our O/W call on Sing banks going into 2Q results and, despite the uninspiring results and downbeat guidance on loan growth/NIM, Sing bank share prices continue to push higher,with both DBS SP and UOB SP hitting new 52-week highs this week.

As we had argued, the bullish Sing bank trade is now much less driven by shorter-term micro incrementals (i.e. adjustments to loan growth and NIM expectations) and is instead a more secular macro call, underpinned by increasingly positive contrast vs. global bank peers (i.e. solid fundamentals, strong sovereign, “safe” regulatory backdrop) and, on valuations, vs. ASEAN peers (i.e. Sing banks, deriving 65- 90% of group PBT from ASEAN (see attachment), have seen valuation discount to ASEAN peers steadily expand over the last 2 years)

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