SINGAPORE (May 2): CIMB Research and OCBC Investment Research have reiterated their “hold” calls on UOB Bank, raising their respective target price and fair value estimates to $21.20 from $20.37 and $21.66 from $20.55 previously.
In separate reports on Friday, the analysts of both brokerages note the bank’s stable non-performing loan (NPL) ratio; reduced exposure to the oil and gas (O&G) sector as compared to the previous quarter; as well as effective cost controls as implemented by its management, leading the cost-income ratio (CIR) to fall to about 45%.
While OCBC’s lead analyst, Carmen Lee, believes that “the worst from the oil and gas industry appears to be over”, she emphasises that the bank’s operating environment could remain tough.
“Specific allowances have come off and should start to normalise soon. Management guided that last quarter’s high tax rate is likely to come off and that they will continue to invest in IT, but will be watching staff costs. In addition, they expect wealth momentum to continue to be supported by more products,” notes Lee.
Meanwhile, CIMB analyst Jessalynn Chen highlights that about 20-30% of UOB’s trading was from opportunistic position taking, even as UOB delivered “decent” return on equity (ROE) of 10% over the quarter.
The remaining 70-80% was driven by customer flow – helped by the addition of a new time in China – and hence should be sustainable, in Chen’s view.
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“While net interest income (NII) should improve with upward net interest margin (NIM) bias, cost pressures will show up ahead and concerns surrounding UOB’s large exposure to small medium enterprises (SMEs) could limit share price upside,” she adds.
As at 10.56am, shares of UOB are trading 3.35% higher at $22.53.
