UOB Malaysia is a key component of UOB Group’s strategy in the region and several group initiatives including FDI Advisory have the potential to strengthen its regional businesses by extending its range of banking services to clients, with a key aim to be a primary bank for its corporate customers. Recent price correction has thrown up opportunities to re-invest in the stock, especially with the more optimistic outlook and the re-rating of banking stocks in the region. We are raising our valuation peg and our fair value estimate moves up from S$23.87 to S$25.00. Together with a 3% dividend yield and a potential total return of 12%, we are upgrading the stock to a BUY.
Deepening its intra-Asian roots
Continuing with its focus of tapping on rising intra-regional trades, UOB recently shared more details of this strategy at its Corporate Day; this by leveraging on the potential for further trade flows within the region including further cooperation within the ASEAN Economic Community (AEC).
UOB Malaysia – still a key market, but cost could move higher
Going forward, with the investment in infrastructure investments, management expects the cost-to-income ratio to move up from prevailing low rates of 34.1%-37.2% (FY09-13) in Malaysia, which is lower than at the group’s level (41.8% as of 2Q14). Corporate/Business banking will remain key; as there is still a sizeable pool of companies in Malaysia and the economy is still growing at a healthy rate. OCBC Treasury Market Research & Strategy is projecting GDP growth of 5.3% for 2014, up from 4.7% in 2013. For the Malaysian economy, we believe growth will be supported by exports recovery and a healthy and stable financial market. Outbound trades from Malaysia have also been growing, and there has been a recent improvement in non-commodity exports. UOB Malaysia generated average ROE of 17.5% from 2001-2013, and is ranked 7th in terms of gross loans (>5% market share) in Malaysia. It posted net profit of RM1342m in FY13 and this accounted for 15% to UOB Group’s PBT in FY13 – the largest of its overseas operations. In terms of 5-yr CAGR, PBT stood at 18% and total assets was 20%. NPLs were manageable at 1.7% (gross). We also like its FDI Advisory framework, which has a long term effect of further entrenching its clients for more banking services and business flows.
Medium term re-rating likely; upgrade to BUY
Post its recent results, the stock fell from the recent high of S$24.24 to a recent low of S$22.53. We are seeing value emerge again in the stock, especially with the more optimistic outlook and the recent re-rating of banking stocks in the region. Based on comparables’ average Price/Book of 1.4x, we are raising our valuation from S$23.87 to S$25.00. Together with a 3% dividend yield and a potential total return of 12%, we are upgrading the stock to a BUY.
Continuing with its focus of tapping on rising intra-regional trades, UOB recently shared more details of this strategy at its Corporate Day; this by leveraging on the potential for further trade flows within the region including further cooperation within the ASEAN Economic Community (AEC).
UOB Malaysia – still a key market, but cost could move higher
Going forward, with the investment in infrastructure investments, management expects the cost-to-income ratio to move up from prevailing low rates of 34.1%-37.2% (FY09-13) in Malaysia, which is lower than at the group’s level (41.8% as of 2Q14). Corporate/Business banking will remain key; as there is still a sizeable pool of companies in Malaysia and the economy is still growing at a healthy rate. OCBC Treasury Market Research & Strategy is projecting GDP growth of 5.3% for 2014, up from 4.7% in 2013. For the Malaysian economy, we believe growth will be supported by exports recovery and a healthy and stable financial market. Outbound trades from Malaysia have also been growing, and there has been a recent improvement in non-commodity exports. UOB Malaysia generated average ROE of 17.5% from 2001-2013, and is ranked 7th in terms of gross loans (>5% market share) in Malaysia. It posted net profit of RM1342m in FY13 and this accounted for 15% to UOB Group’s PBT in FY13 – the largest of its overseas operations. In terms of 5-yr CAGR, PBT stood at 18% and total assets was 20%. NPLs were manageable at 1.7% (gross). We also like its FDI Advisory framework, which has a long term effect of further entrenching its clients for more banking services and business flows.
Medium term re-rating likely; upgrade to BUY
Post its recent results, the stock fell from the recent high of S$24.24 to a recent low of S$22.53. We are seeing value emerge again in the stock, especially with the more optimistic outlook and the recent re-rating of banking stocks in the region. Based on comparables’ average Price/Book of 1.4x, we are raising our valuation from S$23.87 to S$25.00. Together with a 3% dividend yield and a potential total return of 12%, we are upgrading the stock to a BUY.
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