Key takeaways from recent investor luncheon in Singapore
We recently hosted UOB's 2Q15 post result luncheon with senior management in Singapore. The key areas of interests/questions raised were as follows:
Key focus and interest areas
Asset quality: While UOB expects its loan portfolio to weaken in key regional markets, with near-term headwinds from normalization in U.S. rates, China slowdown, weakening commodity prices, the bank had anticipated this (e.g. has made provisions in GP). It maintains a credit cost guidance of ~32bp, and a lower sequentially net charge in 2H15.
Operating expenses: The higher cost/income ratio resulted from lower non-core trading/investment income for 2Q15 (core business revenue growth trajectory remains decent and in-tact) and continued deployment in human capital and IT expenditures (spend with discipline) reflecting the bank's need to protect customers and increase product capability across markets.
Regional connectivity: One of the bank's key strengths rests in its regional connectivity, with network capability, common platform to service and focus on customer segments across various markets as a single bank. Because of this competitive edge and stronger network, the bank sees itself as well placed to capture growth from One-Belt-One-Road as well.
Digital banking outlook: Resting on the core values of its regional connectivity, the investment in digital banking is to continue to focus and connect across all key customer segments. The deployment into digital banking was not to follow in the footsteps of other banks, but because UOB moves along with its customers and the changing business model.
Wealth management: The bank prefers quality rather than being too commercialized. The strategy is to remain focused (not cater to every high-net-worth) and provide a simple product solution for its core focus group, such as existing high-net worth SME customers.
Maintain a more cautious view vs. SG bank peers. Maintain Hold
Relative to its peers in Singapore, we believe UOB faces more near-term headwinds because it has more ASEAN regional exposure than DBS & OCBC
. While share price performance has partially reflected our concerns (underperforming DBS by 11% and OCBC by 10%), valuations of 1.2x 2015E P/B is only at a slight discount vs. peers with no strong upside catalysts. We maintain Hold
. We prefer DBS (Buy, SGD20.32), then OCBC (Buy, SGD10.2) ahead of UOB in SG banks
. (Read Report)
Source : Deutsche Bank Markets Research
Labels: Banks, UOB