UOB Kay Hian (UOBKH) investors can look forward to new Securitised Token Offerings (STOs) offered by technology company ECXX Global as part of a collaboration between ECXX and UOBKH, announced on Monday.

 

Under the new offering, both sides will facilitate tokenisation projects as well as market and distribute tokens to potential investors under UOBKH.

 

According to UOBKH and ECXX, the STOs will comply with regulations for token issuance, while providing investor education and analysis on tokenisation and tokens investment.

 

" We are excited by the opportunities arising from this collaboration with UOB Kay Hian," said Branson Lee, chief executive officer of ECXX.

 

" They are one of the leading regional brokerages out there and we believe that we are able to address their large list of accredited investors who are interested in token investment," he added.

 

The company said the partnership will " bring in deep-tech startups to their network and offer them the opportunity to list via Securitised Token Offerings to raise growth capital."

 

Said Esmond Choo, senior executive director of UOBKH: " The ECXX platform is designed to be very versatile and will serve the fast-growing digital asset space... We believe that this collaboration will allow us to leverage our respective strengths to grow our presence in the fintech sector."

 

The STOs have been approved by the Monetary Authority of Singapore to be admitted under the Fintech Sandbox Express, which allows firms to begin market testing of financial products and services within 21 days of application.

 

UOB Kay Hian Research analyst Jonathan Koh has maintained overweight on the Singapore banking sector amid the entry of digital-only banks.

 

&ldquo The odds are against digital-only banks achieving sustainable profitability because customers are demanding and prefer to be served on an omni-channel basis through both online apps and face-to-face interactions at physical branches,&rdquo says Koh in a report dated Jan 12.

 

The number of digital-only challenger banks has increased at a compound annual growth rate (CAGR) of 26% since 2010, and it has expanded three-fold since 2015.

These banks provide online-only and mobile-centric financial services that allow you to access them at anytime and anywhere.

 

However, Koh notes that digital-only challenger banks are persistently loss-making, compared to the incumbent brick-and-mortar banks.

 

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The latter has multiple sources of income compared to the digital-only banks that rely on transaction fees.

 

Customers at digital-only banks hold an average of 1.5 products with the bank, compared to customers holding an average of five products at incumbent banks, says Koh.

 

&ldquo Digital-only banks&rsquo weakness centres on the inability to generate revenue,&rdquo he adds. &ldquo [For instance], digital-only banks&rsquo loss per customer has deteriorated from &euro 10-&euro 60 ($16.15 -$96.91) pre-Covid-19 to &euro 20-&euro 75 post-Covid-19. Incumbent banks&rsquo profit per customer has deteriorated from &euro 150-&euro 350 pre-Covid-19 to &euro 50-&euro 200 post-Covid-19.&rdquo

Furthermore, digital-only banks require continued funding from investors.

 

According to global management consultancy firm McKinsey, &ldquo many digital-only banks cannot sustain a cash consumptive business model&rdquo , and that &ldquo the Covid-19 pandemic has shortened the runway for many fintechs, posing an existential threat to the sector&rdquo .

Funding for such banks has also dried up, notes Koh.

 

&ldquo According to KPMG, total global investment activities in fintech, (encompassing venture capital, private equity and M& A) had dropped by 66% on an annualised basis in 1HFY2020,&rdquo he says.

 

&ldquo The party years have ended and investors have started to closely scrutinise the profitability of digital-only banks. Many early-stage fintechs struggled to attract funding. Monzo, a top digital-only bank based in the UK, raised funds at a 40% discount to the previous valuation in June 2020. In its annual report 2020, Monzo warned that its ability to continue as a going concern is subject to material uncertainties,&rdquo Koh adds.

 

How the Covid-19 pandemic has impacted the incomes of digital-only banks

Digital-only banks also failed to shine during the Covid-19 pandemic, a period which saw the rise in e-commerce, online gaming, video streaming and food delivery.

In addition, the drop in consumer spending and overseas travel has resulted in a steep decline in the challenger banks&rsquo incomes during the pandemic due to their heavy reliance on transaction fees.

 

Customers also seem to have lost faith in Monzo and Revolut, two digital-only banks.

&ldquo Monzo and Revolut received a barrage of complaints from customers shut out of their accounts frozen during the lockdown. Hundreds of customers complained that they could not access their funds as their accounts were frozen without notice. This episode of poor customer service will affect customers&rsquo perception on reliability of digital-only banks,&rdquo says Koh.

 

Xinja Bank, a digital-only bank in Australia that was launched in 2019, has recently given its customers the required seven-day notice to close their savings and transaction accounts.

 

The bank has since refunded customer deposits and returned its banking license to the Australian Prudential Regulation Authority in Dec 2020, as raising capital has become impossible due to the Covid-19 pandemic. The bank will, instead, focus on its US share trading platform Dabble.

 

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Local banks

 

As the Covid-19 vaccination is expected to be given to most of the population by 3Q2021, the commencement would improve business confidence, ease safe distancing measures and reduce stress on the corporate sector, this moderating non-performing loan (NPL) formation, notes Koh.

 

Singapore banks will also get to benefit from lower credit costs in 2021.

 

&ldquo DBS&rsquo s and OCBC&rsquo s total provisions for 3QFY2020 dropped 35% and 53% q-o-q respectively. DBS&rsquo s and OCBC&rsquo s credit costs for 3QFY2020 eased to 59 basis points (bp) and 52bp respectively, compared with 104bp and 105bp in 1HFY2020,&rdquo he says.

 

&ldquo DBS has maintained guidance for cumulative credit costs in 2020-21 at 80-130bp, while that for OCBC is 100-130bp. For DBS, we estimate 2020 provisions at $2.9 billion, and to drop to $1.6 billion in 2021. OCBC is optimistic that credit costs for 2020-2021 could gravitate towards the bottom-end of management&rsquo s guidance at 100bp. For OCBC, we estimate provisions at $2.1 billion for 2020, and to drop to $0.9 billion in 2021,&rdquo he adds.

 

To this end, Koh envisions a gradual normalisation of dividend payouts, as Singapore banks will resume their roles as yield plays.

 

&ldquo We expect DBS to pay 30 cents per quarter in 2021 and 33 cents per quarter in 2022. We expect OCBC to pay 25 cents per half year in 2021 and 28 cents per half year in 2022. Thus, we see dividend yield from DBS improving from 4.0% in 2021 to 4.9% in 2022. Dividend yield from OCBC is expected to improve from 4.7% in 2021 to 5.3% in 2022,&rdquo he adds.

UOB Kay Hian has maintained its " buy" call on Singapore Medical Group (SMG) with a higher target price of S$0.46 compared to S$0.37 previously, following the group' s Dec 20 disclosure of a possible transaction involving the company' s shares.

 

The stock has risen 12 per cent to S$0.33 since the announcement, although discussions remain preliminary, noted analyst Lucas Teng in a report on Monday.

 

Assuming a potential offer, he believes SMG should be valued at a slight premium or at least similar to its peers, given the group' s expansion in high-growth markets, as well as organic growth initiatives from the addition of medical specialists.

 

Based on his projections, the counter is currently trading to 17 times FY2020 forward price-to-earnings (P/E) and 12 times FY2021 P/E. This comes even as SMG' s 2020 earnings were impacted by Covid-19, added Mr Teng, as the group recently posted a 49.5 per cent drop in net profit for H1 2020 on lower revenue.

 

With SMG' s management highlighting pent-up demand for elective medical services during the latest half-year results announcement, Mr Teng foresees a faster recovery in the group' s patient load.

 

He has raised his FY2020-2021 net profit forecasts for SMG by 4 per cent and 12 per cent respectively as a stronger-than-expected recovery for such demand could lift patient loads to 80-85 per cent of pre-Covid levels in 2021, in his view.

 

" Based on our channel checks, we believe demand for elective medical services remained robust in H2 2020. This could be likely due to the diversion of travel expenditure to healthcare expenditure, as well as an increasingly health-conscious population amid Covid-19. This would likely support earnings of healthcare players, such as SMG, in H2 2020," said the analyst.

 

" Recent offers for healthcare peers were done at 26-31 times implied forward P/E... Assuming its patient load recovers to 80-85 per cent of pre-Covid levels in 2021, SMG would still be trading at a discount to recent offer premiums as well as peers' average of 17 times 2021F P/E," he concluded.

 

On Jan 5, UOB-Kay Hian Holdings (UOBKH) chairman and managing director Wee Ee-Chao acquired 125,100 shares of the company for a consideration of S$180,144, at S$1.44 per share.

 

This increased his total interest in UOBKH from 30.83 per cent to 30.85 per cent.

 

Mr Wee' s total interest in UOBKH has gradually increased from 29.49 per cent at the end of 2019, and increased from 27.98 per cent at the end of 2018.

 

For its H1FY20 (ended June 30), UOBKH recorded pre-tax profit of S$87.2 million and after-tax profit of S$76.7 million - an increase of 174.7 per cent and 167.1 per cent respectively.

 

UOBKH also reported that commission income increased from S$98.0 million to S$186.3 million, up by 90 per cent mainly due to active retail participation across regional and US markets, coinciding with market volatility.

 

Based on past filings, investors expect the company to report its FY20 results at the end of February.

 

Between Dec 3 and 8, UOB-Kay Hian Holdings (UOBKH) chairman and managing director Wee Ee-Chao acquired 43,400 shares of the company for a consideration of S$60,760 at S$1.40 per share, following the acquisition of 105,500 shares at the same price over the preceding five sessions.

 

The 10 days of transactions increased his total interest in UOBKH from 30.76 per cent to 30.78 per cent.

 

Mr Wee' s total interest in UOBKH has gradually increased from 29.49 per cent at the end of 2019, and increased from 27.98 per cent at the end of 2018.

 

Between Nov 26 and Dec 1, UOB-Kay Hian Holdings (UOBKH) chairman and managing director Wee Ee-Chao acquired 105,500 shares of the company at S$1.40 per share.

 

This increased his total interest in UOBKH from 30.76 per cent to 30.77 per cent.

 

Mr Wee' s total interest in UOBKH has gradually increased from 29.49 per cent at the end of 2019, and increased from 27.98 per cent at the end of 2018.

 

Between Nov 24 and 25, UOB-Kay Hian Holdings (UOBKH) chairman and managing director Wee Ee-Chao acquired 100,000 shares of the company at S$1.40 per share.

 

This increased his total interest in UOBKH from 30.75 per cent to 30.76 per cent.

 

Mr Wee' s total interest in UOBKH has gradually increased from 29.49 per cent at the end of 2019, and increased from 27.98 per cent at the end of 2018.

 

UOB Kay Hian on Thursday initiated coverage on advanced materials and nanoproducts firm Nanofilm Technologies International with a " buy" call and a target price of S$4.07.

 

The recently listed stock - the first tech unicorn on Singapore' s bourse - was trading at S$3.34 as at 2.55pm, up S$0.24 or 7.7 per cent, with some 5.6 million shares changing hands.

 

Nanofilm, which provides blue-chip customers with surface vacuum coating technology solutions, has a " strong competitive advantage and warrants a premium to its peers" , the brokerage wrote.

 

UOBKH expects to see a robust 38.7 per cent three-year compound annual growth rate (CAGR) for the company' s earnings for 2019 to 2022.

 

This growth will likely come from a bigger wallet share of existing customers as the mainboard-listed firm aims to become a one-stop solution provider, as well as from the new application of technology, said analysts John Cheong and Joohijit Kaur.

 

Nanofilm is exploring the application of its technology in other industries such as biomedical, Internet of Things and medical implants, they noted.

 

In addition, most of its key customers are in industries with " good growth prospects" , including smartphones, wearables, computers, automotives and nanofabrication. For example, there is demand for nanotechnology solutions for smartwatch bands, car engine components such as fuel cells, as well as optical lenses and sensory components.

 

UOBKH said that Nanofilm' s differentiated technology-based solutions have enabled its customers to achieve greater user life, enhanced aesthetics and functionality in their end products.

 

Thanks to its unique coating technology, Nanofilm is the single-source supplier for 90 per cent of its top 10 customers, and has built long-standing relationships with industry leaders in the likes of Fuji, Nikon and Canon, which have been its clients for the past 13-15 years.

 

Nanofilm has also been supplying to software giant Microsoft as well as smartphone maker Huawei Technologies.

 

" We believe the company' s proprietary technology, heavy emphasis on research and development, and ability to build its own coating machineries have helped to build a high barrier of entry from competitors," UOBKH said.

 

The company generates a superior net margin of around 25 per cent, more than double the industry average of 12 per cent in 2019, the analysts wrote.

 

In comparison, 2020 net margins for its US peers - New York-listed 3M Co and PPG Industries - are estimated to come in at about 15.7 per cent and 9.8 per cent respectively. Switzerland' s Ems-Chemie, meanwhile, will see a 24.3 per cent net margin, UOBKH said.

 

Moreover, the global market size for advanced materials is expected to increase at a CAGR of 7.5 per cent between 2020 and 2023, according to research and consultancy firm Frost & Sullivan.

 

And the global market size for nanoproducts will register a 2020-2023 CAGR of 11 per cent, reaching US$7.8 billion in 2023, based on Frost & Sullivan' s forecasts.

UOB-Kay Hian Holdings

 

Between Nov 6 and 11, UOB-Kay Hian Holdings (UOBKH) chairman and managing director Wee Ee-chao acquired 27,000 shares of the listed company for a consideration of S$36,450, at an average price of S$1.35 per share.

 

This increased his total interest in UOBKH from 30.74 per cent to 30.75 per cent.

 

Mr Wee' s total interest in UOBKH has gradually increased from 29.49 per cent at the end of 2019, and increased from 27.98 per cent at the end of 2018.