RHB Bank Singapore has kept United Overseas Bank (UOB) U11 as its top pick among the three Singapore banks, following its 1QFY2023 earnings that grew by 74% y-o-y to hit a record $1.51 billion.
RHB, in its April 28 note, says that Singapore's "uncertain and fragile" economic outlook has dampened interest in bank stocks. Nonetheless, it expects UOB to report further growth ahead, given its focus on leveraging its network across the key Asean markets.
"Sustained momentum in fee income and contributions from Citi's retail assets would drive topline and offset short-term net interest margin weakness," says RHB, which has kept both its "buy" call and $34.90 target price.
Furthermore, UOB's price to book value, at just 1x, and ROE, at 13%, remains "compelling", adds RHB. The $34.90 target price is pegged to 1.22x P/B.
OCBC Investment Research, in its April 27 note, has similarly kept its "buy" call and $34 target price.
OCBC calls UOB's 1QFY2023 numbers "resilient" with the non-performing loan ratio unchanged at 1.6% despite the weaker economic environment.
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From OCBC's perspective, potential catalysts for UOB's share price would come improved expectations for capital management and dividend policy; a pick up in its wealth management segment's growth and digital execution strategy.
Faster than expected market share gains and NIM expansion; improvement in macroeconomic outlook and earnings growth expectations and last but not least, synergies from its recent acquisition of Citibank's retail businesses in Thailand, Indonesia, Malaysia and Vietnam, adds OCBC.
DBS Group Research, in contrast, chose to retain its slightly more conservative view on UOB.
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In their April 27 note, analysts Lim Rui Wen and Tabitha Foo have maintained their "hold" call and $30.30 price target, as they see "limited catalysts" with the Fed rate hike nearing the peak. They also warn of further downside risks and asset quality risks.
"We believe there is limited upside for UOB's NIMs, as an increase in funding costs offsets an increase in asset yields," write the analysts, noting that UOB has been offering depositors higher rates for some of the accounts, relative to its peers.
In 1QFY2023, UOB's net interest margin had its first quarterly dip in the current cycle, down 8 basis points q-o-q to 2.14%.
Maybank Securities analyst Thilan Wickramasinghe is keeping his "hold" call even though the bank's 1QFY2023 results surpassed his expectations.
That said, he believes that maintaining a similar momentum "could become harder going forward".
"Higher deposit competition and resistance to climbing loan pricing is likely to slow NIM growth, while asset quality risks also need to be watched," he adds. "On the other hand, a strong balance sheet, high provisioning cover provide downside support."
On the back of an expected slowdown in NIM and loan growth, Wickramasinghe has lowered his FY2023 to FY2025 earnings estimates by 2% to 3%. As a result, he has also lowered his target price to $30.53, down from $31.73 previously.
