SINGAPORE (Oct 31): DBS Vickers Securities, OCBC Investment Research and Maybank Kim Eng are maintaining their “hold” calls on United Overseas Banking (UOB) following the release of the group’s 3Q financial results last Friday – even as the bank’s earnings of $791 million came in above the Bloomberg consensus of $771 million.

(See also: <a href="http://www.theedgemarkets.com.sg/sg/article/uob%E2%80%99s-3q-earnings-fall-78-791-mil-absence-one-gain-higher-allowances" target="_blank">UOB’s 3Q earnings fall 7.8% to $791 mil on absence of one-off gain, higher allowances</a>)

While OCBC has lowered its fair value estimate to $18.78 from $19.61 taking into account a “still challenging environment and the prospect of further weakness in collateral value”, DBS and Maybank have raised their target prices to $18.10 (previously $17.70) and $18.36 (previously $18.34) respectively.

All three research houses have noted UOB’s near-term concerns arising from its exposure to the beleaguered oil & gas (O&G) sector, as well as its deterioration of collateral value in 3Q as a result.

DBS analyst Lim Sue Lin says the bank’s scrip dividends will “continue be a feature in view of the uncertain regulatory requirements” and that its quantum of specific provisions should ease by next year.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/uni-asia-group-well-placed-gain-surging-charter-rates-phillipcapital?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Uni-Asia Group well placed to gain from surging charter rates: PhillipCapital</a>

While she notes that UOB’s regional footprint in the ASEAN region is more complete versus its peers, the analyst believes near-term headwinds faced in managing asset quality issues could hamper the bank’s earnings growth and hence, share price performance.

“We expect that for the near to medium term, there is a lack of share price drivers and we prefer to accumulate on price weakness,” adds OCBC lead analyst Carmen Lee.

Lee believes the current slowdown and potentially higher rates ahead could hurt the small medium enterprise (SME) segment which accounted for 20% of UOB’s loans book.

Maybank analyst Ng Li Hiang, too, expects to see some stress in the SME segment in view of “lacklustre domestic/regional economic growth amid the turning credit cycle” and says there is a lack of signs of widening credit spreads in a heightened risk environment.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/brokers-calls/cgs-cimb-slashes-nanofilm-target-price-307-cuts-revenue-forecasts?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>CGS-CIMB slashes Nanofilm target price to $3.07, cuts revenue forecasts</a>

However, she adds that Maybank continues to prefer UOB among the banking sector due to its lower exposure to the O&G sector and China compared to its peers.

Shares of UOB are trading 10 cents lower at $18.53.

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