United Overseas Bank

DMG & Partners Research on 4 Sept 2012

WE ATTENDED the UOB Corp Day in Singapore and were briefed by the heads of various business units. We came out optimistic on UOB's plans to drive its core SME niche to the regional markets, as well as its focus on fees rather than interest income for the syndicated loan space. Maintain "buy" with target price of $21.40 pegged to 1.5 times 2012 book.

The SME business remains a core part of UOB. The strategy is to grow the regional SME business to half of commercial banking PBT (profit before tax) by 2015 (from the current 41 per cent). UOB capitalises on its regional network to improve on its SME lending pricing. UOB will also work on raising the fee to total income for SME customers, as SME customers now participate in the derivatives market, buy life assurance for their key executives, etc.

For the corporate banking space, UOB intends to focus on its niche in mid-caps and leave the big caps to the global banks. UOB is aware that in its regional operations, there are local banks with much lower funding cost. UOB's strategy is to capitalise on its regional network to attract corporates keen on going regional and this also helps UOB derive better margins.

UOB is working to increase its presence in the Affluent segment, which is defined as those with assets between $350,000 and $2 million. UOB believes the sweet spot lies in affluent individuals with assets of about $800,000, which is nicely served by its privilege banking segment. To grow the wealth management segment, UOB is targeting for 67 wealth management centres by 2015, up from June 2012's 49 centres.

Wealth management product sales have grown, with 2011 sales being 2.4 times that for 2007. Wealth management product sales account for 35 per cent of total global market product sales, up from 2007's 26 per cent. This reflects UOB's growing franchise despite the fallout from the Lehman crisis.

Less competition from foreign banks is a positive for UOB's investment banking business. On the investment banking space, UOB is ranked among the top three in the syndicated loans league table (with a 12.3 per cent market share). UOB's focus is on fees gathering and only very selectively participates in syndicated loans deals. UOB has gained market share from foreign banks becoming less aggressive in this part of the business and will work to improve on this.
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