United Overseas Bank - Accelerating Its ASEAN Strategy; A Recovery Play & Fed Hike Beneficiary
- We believe there is further room for UOB's share price to re-rate as we continue to expect economic recovery in a rate hike environment.
- UOB (SGX:U11)'s management expects some net interest margin (NIM) improvement into FY22F as it gears up on regional loans, which typically have higher NIMs. Successive fed hikes will also be positive for UOB’s NIM through FY23F. Release of its management overlay buffers in general provisions may further provide ROE upside in FY22F.
- UOB’s acquisition of Citigroup’s Consumer Business in Indonesia, Malaysia, Thailand and Vietnam is positive to UOB’s overall strategy in our view, enabling UOB to accelerate, scale up and deepen the regional franchise. Execution remains key to longer-term synergies as management targets > 13% ROE post-acquisition by FY26F.
- Potential catalyst: Sustained positive deliveries. Lower-than-expected credit costs could drive UOB’s earnings while post-COVID recovery in ROE could boost its share price.
- Maintain BUY call on UOB with higher target price of S$34.20. Our target price of S$34.20 is based on the Gordon Growth Model (11% ROE (previous: 10%), 3% growth, 9% cost of equity) on the back of higher ROE assumptions. This is equivalent to a ~1.3x FY22F P/BV that is ~0.5 standard deviation above its average 12-year forward P/BV multiple.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Rui Wen LIM DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-01-17 2022-01-17
Read also DBS Research's most recent report:
2022-10-28 UOB - A Stellar NIM Showing, 3Q22 Results Strongly Ahead Of Consensus
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