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Regional Equity Strategy Q4 2007
Stock Profile: UOB
BUY S$20.80 STI : 3,476.31
Price Target : 12-month S$ 27.50
Potential Catalyst: Capital management and regionalisation
ANALYST
Singapore Research Team
research@dbsvickers.com
FORECASTS AND VALUATION
FY Dec (S$ m) 2006A 2007F 2008F 2009F
Operating Inc 4,837 4,677 5,150 5,626
Net Interest Inc 2,710 2,962 3,217 3,436
Pre-prov. Profit 3,088 2,750 3,021 3,283
Net Profit 2,570 2,237 2,450 2,661
Net Pft (Pre Ex.) 2,570 2,237 2,450 2,661
EPS Pre Ex. (S cts) 168.7 146.8 160.8 174.7
EPS Gth Pre Ex (%) 52 (13) 10 9
EPS Gth (%) 52 (13) 10 9
Diluted EPS (S cts) 168.7 146.8 160.8 174.7
PE Pre Ex. (X) 12.3 14.2 12.9 11.9
Net DPS (S cts) 67.3 66.2 72.5 78.8
Div Yield (%) 3.2 3.2 3.5 3.8
ROAE Pre Ex. (%) 12.5 13.5 13.7 13.8
ROAE (%) 17.1 13.5 13.7 13.8
ROA (%) 1.7 1.4 1.3 1.4
BV Per Share (S cts) 1,048 1,128 1,217 1,312
RNAV per shr (S cts) 1,172 1,253 1,341 1,437
P/Book Value (x) 2.0 1.8 1.7 1.6
SHARE PRICE CHART
S$
26.30
24.30
22.30
20.30
18.30
16.30
14.30
Sep-06 Nov-06 Feb-07 Apr-07 Jun-07 Sep-07
UOB
100-Day MA
AT A GLANCE
Issued Capital (m shrs) 1,524
Mkt. Cap (S$m/US$m) 31,694 / 20,898
Major Shareholders
Wee Cho Yaw (%) 16.9
Wee Investment (%) 7.4
Wah Hin & Co Pte (%) 5.3
Free Float (%) 70.2
Avg. Daily Vol.(‘000) 7,253
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (S cts): 2007: 141.6 2008: 157.0
Variance vs Cons (%): 2007: 3.7 2008: 2.4
Sector : Banking
Bloomberg/Reuters Code: UOB SP/UOBH.SI
Principal Business: Financials
UOB
Geared for growth domestically and regionally
Story: We like UOB for its domestic exposure especially
in the housing loan market, complemented by its diversified
regional presence.
Point: We believe UOB is poised to deliver sustainable
earnings from stronger loan growth. Positive surprises could
arise from its regional network especially in Thailand.
Relevance: We maintain our Buy call on UOB with a
target price of S$27.50 based on the Gordon Growth
Model. This yields an implied 2.1x FY08 adjusted book
value, based on peak valuations.
Beneficiary of domestic growth. We believe UOB will gain
from the domestic economic boom and will deliver positive
surprises from stronger loan growth. Complementing its
domestic strength is its diversified regional banking franchises
(Singapore, Malaysia, Indonesia and Thailand), which should
support future profitability. While UOB is strong in Singapore
and Malaysia, we believe there is scope for expansion in UOB
Buana, Indonesia and potential recovery in UOB Thai.
UOB gearing up north-east Asian expansion. UOB made
further inroads in its regionalisation endeavour with a 10%
stake in Southern Commercial Joint Stock Bank in Vietnam
(intention to increase its stake when regulatory authorities
allow), and has started negotiations for a strategic investment
in China’s Evergrowing Bank. There were no further updates on
UOB’s 20% acquisition in China’s Evergrowing Bank. We
understand that UOB is in the midst of obtaining the necessary
approvals for its licence to operate its locally incorporated
subsidiary in China, which could be operational by end of this
year. An organic growth strategy would be adopted and UOB’s
branding would be leveraged for retail products in mortgages
and wealth management.
UOB’s CDO exposure not a major concern. UOB’s total CDO
investments were S$392m, of which S$91m are high-grade
ABS (no downgrades in ratings so far), and S$301m are
corporate CDOs. UOB does not have direct exposures to US
sub-prime mortgages. UOB made up to S$34m provisions as at
end Jun-07 which were charged against its profit and loss
account based on its previous investments and another S$15m
set-off against its reserves in the balance sheet in end Jul-07. At
this juncture, based on guidance from management, we do not
foresee significant provisions to be carried out.
Significant upside to target price. Concerns on CDO losses
had wiped off up to 14% of UOB’s market capitalisation in
Aug-07 which overshadowed possible provisions and
impairment (CDO exposure as a proportion of market
capitalisation is only 4%). Since then, share price has recovered
by some 11%. Comparatively UOB has the least exposure to
CDOs.
Refer to important disclosures at the end of this report
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