SINGAPORE (Aug 22): Maybank Kim Eng is upgrading UOB to “buy” with a target price of $26.40 on pricing discipline and sensitivity to re-pricing intervals.
Meanwhile, DBS and OCBC are the preferred “hold” stocks with target prices of $21.50 and $11.05 respectively, given limited upside to current share prices.
In a Tuesday report, analyst Ng Li Hiang says, “Although banks guided for mid-single digit loan growth in FY17, we are more optimistic and raised our FY17-19E loan growth assumption to 5-9%.”
This comes on the back of sanguine economic prospects as Singapore’s economy is starting to benefit from the trade-led growth recovery as well as an improving buying sentiment in Singapore’s property market.
Customer spreads are now slightly higher at 1.96-2.14% across the banks, with UOB having the highest spread.
“We attribute this partly to UOB’s pricing strategy discipline in protecting against margin erosion from high-quality customers that tend to have lower-yielding margins,” says Ng.
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“We expect FY17-19E NIM to improve slightly from current levels of 1.68-1.77%/1.69-1.79%/1.70-1.82% on the back of higher rates,” he adds.
Meanwhile, Ng is keeping its provision estimates at elevated levels given tail risks from exposure to the Oil & Gas sector.
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Ng says UOB is relatively better shielded than peers from further deterioration in the O&G sector as it has the lowest O&G exposure but higher specific provisions and highest provision coverage and general provision buffer.
Aside from O&G, he also expects asset quality for the broader sectors to remain stable for the banks.
As at 10.22am, shares in UOB, DBS and OCBC are trading at $23.72, $20.53 and $11.09 respectively.
