Analysts shave UOB forecasts on operating challenges & limited upside, but remain positive at 'buy'

Analysts shave UOB forecasts on operating challenges & limited upside, but remain positive at 'buy'

Michelle Zhu
25/02/19, 12:18 pm

SINGAPORE (Feb 25): Jefferies and OCBC Investment Research are maintaining their “buy” calls on United Overseas Bank (UOB) with a target price and fair value of $30 and $28.30, respectively, even after the bank’s recently reported set of 4Q and FY18 financials came in slightly below both research houses’ expectations.

While Jefferies has lowered FY19-20 EPS estimates by 3.6% and 4.5%, respectively, to account for lower loan growth and margin assumptions, OCBC cuts its net earnings estimates for FY19 to $4.26 billion from $4.36 billion on expectations of continued volatility for the bank’s operating environment.

In a Monday report, Jefferies analyst Krishna Guha highlights the possibility of continued disappointment in UOB’s margin going forward, as mortgage refinancing may see a price/volume trade-off, with limited upside to grow loan/deposit ratios (LDR).

His lower price target of $30 compared to $31 previously implies 12.3 times FY19F EPS, which implies 4.2% growth and 4.6% yield.

“We price in 1 bp increase in margin for FY19. We maintain the view that credit cost will continue to normalise and come in at higher end of the guidance range. That said, it is unlikely to exceed 30 bps that we saw in 2017,” says Guha.

Nonetheless, the analyst sees a possible upside to UOB’s dividend as its profitability improves.

He estimates 60 bps capital accretion assuming 5% loan growth, unchanged dividend and 11.5% return on equity (RoE).  

Separately, OCBC analyst Carmen Lee’s revised estimates comes as she rolls its valuation into FY19 based on an unchanged 1.2 times book.

Based on a 42% payout ratio, Lee’s dividend per share (DPS) estimate is $1.30, which implies a dividend yield of 5.1% at its last closing price of $25.58.

The analyst continues to remain positive on UOB for its fairly stable outlook, and believes its growth fundamentals remain intact.

“While challenges remain in the regional operating environment, management is confident of growing its loans by mid-single-digit in 2019. There is also room for NIM to improve from current level, largely due to the re-pricing of mortgage loans this year,” notes Lee.

“In terms of cost-to-income, it went up slightly to 43.9% in FY18 and management is aiming to maintain this at 44%. It will also continue to invest in technology, especially in cash management, wealth and trade. For ROE guidance, this is expected to be 12% this year versus 11.3% in FY18,” she adds.

Shares in UOB last traded 20 cents or 0.8% lower at $25.38 before the midday break, which implies a 5.06% FY19F dividend yield based on OCBC estimates.

Don't demonise China but neither be its vassal state: Ho Kwon Ping

SINGAPORE (Apr 23): The current United States and China trade tensions, businessman Ho Kwon Ping thinks, is not about a trade war but about a paradigm shift towards China becoming a major global player who does not want to play by Western rules. Ho says: “The current US-China tensions are not only not about the trade war, it is not even about geopolitical or geo-economic rivalry. It is about an entire paradigm shift in civilisational relationships which has not happened for the last 200 to 300 years ever since the ascendancy of Western civilisation to become the dominant civilisation in t....

UOB Kay Hian remains positive as SPH turns to student accommodation to arrest flagging media business

SINGAPORE (Apr 23): Despite continued weakness in its core media business, UOB Kay Hian is staying positive on Singapore Press Holdings (SPH) on the back of its foray into the student accommodation segment. SPH last week announced it has acquired a portfolio of three purpose-built student accommodation (PBSA) assets in the UK for £134 million ($237 million). See: SPH expands UK student dorm portfolio with $237 mil acquisition The assets span three cities in the UK – Southampton, Sheffield and Leads – and has a total capacity of 1,243 beds, bringing SPH’s total portfolio to over....

Ascott transforms digital ecosystem to support expansion

SINGAPORE (Apr 23): The Ascott Limited, CapitaLand’s wholly-owned lodging business unit, is embarking on a digital ecosystem transformation to support its expanding global lodging portfolio. The company aims to drive revenue growth, improve operational efficiency and enhance value to its customers and business partners through a comprehensive front-to-backend systems makeover. As part of its digital transformation, Ascott has launched the Ascott Star Rewards, the world’s first loyalty programme in the serviced residence industry to offer full flexibility to earn and redeem points. It....