sg stock focus dbs medium term uptrend remains intact ahead of earnings 1856742017

Singapore’s Q2 earnings season is around the corner with the three local banks’ earnings report cards out on 27^th July for OCBC, 28^th July for UOB and 04^th August for the largest bank, DBS. These banks have a significant combined weightage of around 34% in the benchmark FTSE Straits Times Index (STI), thus movement in their share prices will have a major impact on the overall sentiment of the STI.

Also, since the “fateful” post U.S Presidential Election Day on 09 November 2016, the three Singapore banks are the market leaders in the Singapore stock market as well as the Asia ex Japan region where their share prices have outperformed the STI and the MSCI Asia ex Japan index by a significant margin of 24% to 12% with DBS being the top performer (see charts 1 & 2).

Chart 1 – Singapore banks share price performances since 09 Nov 2016

Charts 2 – Singapore banks share price performances since start of 2017

The upcoming Q2 earnings median consensuses of the three Singapore banks from Bloomberg are as follow:

• DBS  expected Q2 EPS at 0.43 (3.5% y/y) versus Q1 EPS of 0.48
• OCBC expected Q2 EPS at 0.22 (1.2% y/y) versus Q1 EPS of 0.23
• UOB expected Q2 EPS at 0.48  (7.5% y/y) versus Q1 EPS of 0.47

There are several potential catalysts that can allow the banks to continue to beat its earnings expectations as seen in the previous quarter are as follow;

• The 3-month SIBOR (Singapore Interbank Offered Rate) has started a path of steady uptrend since its Oct 2016 level of 0.623% and as at 19 July 2017, the 3-month SIBOR has risen to 1.111%. Thus, it can contribute to a wider net interest margins (NIMs) and higher net interest incomes for the banks after a series of flat NIMs seen in the previous three quarters.
• More than 60% of the three banks’ bad debts have come from firms that are exposed to the oil and gas sector. In the previous Q1 earnings reporting session, the management of the three banks had given guidance that such bad loans may have peaked. In addition, in the last round of meeting between OPEC members and non-members, the cartel had committed to extend the production cuts by another nine months to March 2018. Therefore, we expect benchmark oil prices such as the WTI to continue to trade within a range of 43.00 to 56.90 per barrel in the next three months.  Given a stabilisation in the price of oil, we may start to see a dip in the provisions for non-perform loans related to the oil and gas sector.

In our previous technical analysis research report dated on 30 June 2017, DBS had rallied as expected and almost hit its resistance/target of 21.96 (printed a high of 21.95 on 20 July 2017). Click here for a recap.

Now, let us take a look at the latest technical elements of DBS

Medium-term technical outlook on DBS (SGX: D05)

(Click to enlarge charts)

Key technical elements

• Since its low of 13.01 printed on 12 February 2016, DBS has continued its upward trajectory within its long-term ascending channel in place since March 2009 low. The upper boundary/resistance of the ascending channel stands at 23.05 which also confluences with a Fibonacci projection cluster (see daily & weekly chart).
• The weekly RSI oscillator still has room for further upside before it reaches an extreme overbought level of 86% (depicted by the green box as illustrated in the weekly chart). In addition, the daily RSI oscillator remains positive above its support without any bearish divergence signal. These observations suggest that medium-term upside momentum of price action remains intact.
• The key medium-term support now rests at 21.00 which is defined by the medium-term ascending trendline from 31 October 2016 low and the former upper limit of a congestion seen from 12 May to 12 July 2017 (see daily chart).
• Relative strength chart analysis suggest that DBS is likely to continue its outperformance against the benchmark Straits Times Index (STI) by around 8% (refer to the last chart).

Key levels (1 to 3 months)

Intermediate support: 21.54

Pivot (key support): 21.00

Resistances: 22.35/57 & 23.05

Next supports: 18.45 & 17.15

Conclusion

DBS’s medium-term bullish impulsive upleg in place since 31 October 2016 low of 14.80 remains intact. As long as the 21.00 medium-term pivotal support holds, DBS may see a further potential up move to target its next resistances at 22.35/57 follow by 23.05 next.

However, a break below (daily close) 21.00 is likely to damage its medium-term uptrend to open up scope for a potential multi-month corrective decline towards the next support at 18.45 (50% Fibonacci retracement of the current up move from 31 Oct 2016 low to 20 Jul 2017 high & the former swing high area of 08 Dec2016).

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