- Broadly positive management tone at Corporate Day.
- Discipline and steadfastness in building niches. Fine-tuning existing capabilities.
- But no immediate catalysts. Maintain HOLD. No change to EPS or TP (12x FY15E P/E). Sector pick is DBS.
UOB hosted a Malaysia Corporate Day last week to showcase its Malaysian operations, a consumer- and SME-centric bank which accounts for 16% of group PBT. UOB Malaysia is the seventh-largest bank in Malaysia by loans and deposits. While loan growth is slowing, management expects to reap further fruits of its labour. Efforts made years ago to deepen relationships with clients through customised banking solutions via its regional platform should continue to show results. It is focusing on finding and creating niches, while fine-tuning capabilities to meet market demands.
Guiding for weaker ROEs on rising costs
Management expects easing ROEs in Malaysia (FY13: 17.6%, FY12: 17.8%, FY11: 18.6%) due to necessary franchise investments, possibly in Islamic banking. There are limited excesses for pruning given its already lean cost structure. The saving grace is potentially stronger NIM and fee-based income ahead. No immediate catalysts, maintain HOLD
After its recent price correction, UOB’s P/E and P/BV premiums over peers have largely reverted to their averages in the past 10 years. UOB has been priced at its P/E mean since 2005 and at a slight discount to its historical P/BV mean. Still, maintain HOLD in the absence of near-term re-rating catalysts. TP is unchanged at SGD25.30, 12x FY15E P/E or 0.5SD below its rolling P/E mean since
2005.
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