Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
UOB
Bloomberg: UOB SP | Reuters: UOBH.SI
BUY S$17.00 STI : 2,672.60
Price Target : 12-month S$ 18.60
Potential Catalyst: Book value recovery, room for lower provisions and
ROE to normalise.
Analyst
Sue Lin Lim +603 2711 0971
suelin@hwangdbsvickers.com.my
Price Relative
25.40
23.40
21.40
19.40
17.40
15.40
13.40
11.40
9.40
7.40
S$
2005 2006 2007 2008 2009
UOB (LHS) Relative STI INDEX (RHS)
Forecasts and Valuation
Relative Index
FY Dec (S$ m) 2008A 2009F 2010F 2011F
Pre-prov. Profit 3,190 3,117 3,179 3,348
Net Profit 1,937 1,657 1,946 2,340
Net Pft (Pre Ex.) 1,937 1,657 1,946 2,340
EPS (S cts) 128.1 109.6 128.7 154.7
EPS Pre Ex. (S cts) 128.1 109.6 128.7 154.7
EPS Gth Pre Ex (%) (7) (14) 17 20
Diluted EPS (S cts) 128.1 109.6 128.7 154.7
PE Pre Ex. (X) 13.3 15.5 13.2 11.0
Net DPS (S cts) 59.7 54.8 64.4 77.4
Div Yield (%) 3.5 3.2 3.8 4.6
ROAE Pre Ex. (%) 12.6 10.7 11.4 12.9
ROAE (%) 12.6 10.7 11.4 12.9
ROA (%) 1.1 0.9 1.0 1.2
BV Per Share (S cts) 943 1,097 1,161 1,238
P/Book Value (x) 1.8 1.6 1.5 1.4
Earnings Rev (%): - - -
Consensus EPS (S cts): 113.4 132.8 150.2
ICB Industry : Financials
ICB Sector: Banks
Principal Business: Financials
Source of all data: Company, DBS Vickers, Bloomberg
219
199
179
159
139
119
99
79
On track for recovery
• Operationally sound with selective interest in
regional expansion.
• ‘Normalised’ provisions levels should lift earnings
and ROEs.
• Key near term catalyst lies in the re-rating of its
book value.
Operationally sound. UOB remains operationally sound
with pre-provision profits remaining robust up to 1H09
despite going through a tough operating environment
over the last 6-12 months. NIMs are expected to remain
flattish for the rest of the year with competition reemerging
and corporate and SME loan spreads peaking.
Positively, specific provisions have begun to taper off and
we believe NPLs would peak by year-end. UOB remains
selective in its regional expansion. It has a well-established
exposure in Malaysia and Indonesia, while it aims to
entrench its presence in China.
Conservatism in provisions will pay off. UOB remains
conservative as it continues to build its collective
impairment reserves for the year. However, with the
impending economic recovery, we believe collective
impairments would not be a feature in FY10, which
implies a strong earnings recovery in FY10. This would be
a key re-rating for UOB’s earnings and ROEs. Our FY10-11
provision charge-off rate assumptions of 74bps and 40bps
may still appear high compared to UOB’s historical
‘normalised’ levels of 26bps.
ROE re-rating by 2011. We expect FY09 earnings to
remain sluggish with collective impairment building up.
But, 2010 could be a year of earnings recovery, and we
believe earnings and ROEs should normalize by 2011.
UOB’s sustainable ROE of 13% stacks up better than its
peers. UOB’s near term catalyst lies in its book recovery.
Up to 1H09, UOB’s book value has recovered by 12%
since it deteriorated in 4Q08. UOB’s stronger domestic
market share for loans bodes well with the economic
recovery play in 2010.
At A Glance
Issued Capital (m shrs) 1,524
Mkt. Cap (S$m/US$m) 25,909 / 18,314
Major Shareholders
Wee Investment (%) 7.4
Wah Hin & Co Pte (%) 5.3
Free Float (%) 87.3
Avg. Daily Vol.(‘000) 3,493
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Refer to important disclosures at the end of this report
ed: YM / sa: TW