Maybank Kim Eng analyst Thilan Wickramasinghe has maintained “buy” on UOB amid an improving operating outlook as well as better-than-expected asset quality that could drive upside surprises to earnings and provision writebacks.
Wickramasinghe, in a June 4 report, has also kept the bank’s target price at $29.34.
“[UOB’s] execution of its digital banking strategy together with green financing opportunities could further support medium term growth, in our view,” he writes.
In his report, Wickramasinghe views the bank’s green strategy as a plus, following an investor call with the bank’s chief sustainability officer, Eric Lim.
The bank is looking to position its strategy to leverage its balance sheet with advisory, wealth and solutioning capabilities to support their customers’ transition to sustainable opportunities.
As it is, UOB has already invested $12 billion in sustainable finance. It aims to invest a total of $15 billion by FY2023, which is likely to be surpassed in FY2021, says Wickramasinghe.
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The group’s wealth management business is also looking into sustainable themes, while other fee-generating sources such as transaction banking are innovating green services.
In addition, the bank is seeking to build a sustainable growth strategy that serves all its stakeholders, all of which, should drive a long-term competitive advantage for UOB, says Wickramasinghe.
“In the near term, an improving operational outlook and potential provision writebacks should drive earnings momentum,” he writes in a June 4 report.
In the call with Lim, Wickramasinghe writes that the bank sees that it is important to align the group’s strategy towards funding sustainable assets as opposed to competing in the sustainability financing space in terms of generating lower margins than conventional assets.
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“This is the wrong comparison, according to UOB. Non-green assets may offer higher margins now, but over the long run they could become un-fundable. Some may become stranded assets, which could lead to high provisioning risks,” Wickramasinghe says.
Aligning the group’s strategy requires a “major cultural and mindset shift internally”, which is supported by the group’s senior management.
As at 4.48pm, shares in UOB are trading 4 cents higher or 1.5% up at $26.31, or 1.0 times P/B, according to Maybank Kim Eng's estimates.
