This analysis is by Bloomberg Intelligence Regional Market Analyst John Lee. It appeared first on the Bloomberg Terminal.
We highlight three Asia-Pacific companies that are defying the Fed-induced bear market. QBE and Computershare are both highly leveraged to rising rates and could see earnings growth of over 50% in fiscal 2023. DBS may enjoy the best of both worlds, with the largest net interest-margin uplift and the safest asset-quality profile among Singapore peers.
Computershare’s profit could beat by 40%
Leading share-registry operator Computershare earns margin income on client balances. The yield on these funds may surge to 2.3% and 2.7% in fiscal 2023 and 2024 from just 0.6% in 2022. Already this year, consensus has upgraded Computershare’s 2023 earnings by 42%, but BI analyst Sharnie Wong calculates earnings per share could beat consensus by a further 40% for fiscal 2023 and 2024, based on her scenario. Every 25-basis-point rate hike could lift the company’s profit 6%.
Unlike banks, Computershare enjoys rising rates without credit-quality risks. In fact, the company actually gains from rising defaults due to its business-services group, which administers bankruptcies.
QBE could gain most among Aussie insurers
QBE’s fiscal 2023 profit could get a 60% boost from consensus’ expected 300-400 bps of hikes to cash rates in Australia, the US, the UK and Europe — over 60% of its assets are in non-Australian currencies. Among Australian insurers, QBE has the highest exposure to interest income, comprising 39% of its 2021 profit vs. Suncorp at 20% and IAG at 15%. BI analyst Matt Ingram estimates every 50 bps of interest-rate uplift could boost QBE’s 2023 profit by 13%, vs. 9% for IAG and 8% for Suncorp.
In addition, Australian insurers could benefit from strong premium pricing due to surging inflation, with QBE saying: “Rate tapering will likely continue…but increases could remain above inflation.”
DBS has best of both worlds
DBS is the Singapore bank most leveraged to rising rates. It has the largest low-cost deposit base, with a current- and savings-deposit ratio of 76% at end-2021, dwarfing OCBC at 62% and UOB at 56%. DBS also has a larger presence in Singapore and Hong Kong, where interest rates tend to move in-line with the US. BI analyst Sarah Jane Mahmud estimates a 25-bp rise in US benchmark interest rates translates to a 7% pre-tax profit boost for DBS vs. 4-5% for OCB and UOB.
In addition, DBS enjoys sector-leading asset quality driven by outsized loan-loss buffers and robust credit quality, according to BI credit analyst Rena Kwok.
Bloomberg
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