Although there would likely be another large NPL classification in 4Q17, this should mark the end of massive asset quality upsets.
"The end to asset quality woes should warrant a re-rating, which we believe would be the case in FY18," says analyst Lim Sue Ann in a Thursday report.
With the largest proportion of property-related loans among peers, UOB is also well positioned to ride the property market recovery , adds Lim.
NIM improvement looks imminent as SIBOR/SOR finally edged up more visibly over the quarter with some repricing as early as 3Q17.
Separately, with the implementation of IFRS9, banks may no longer be able to continuously build up general provisions which will result in lower credit costs.
Further improvement in NIM and more importantly, a pickup in loan growth due to the recovery of the property market should support earnings strongly.
"Our earnings remain above consensus with a further boost from loan growth and lower provisions resulting in +4% earnings uplift for FY18-19. Our target price is also at the higher end of consensus," says the analyst.
"Maintain 'buy' with higher target price of $29.50. Our revised TP of $29.50, equivalent to 1.4 times FY18 P/BV, which is at its 10-year average P/BV multiple," adds Lim.
As at 1.41pm, shares in DBS are down 14 cents at $26.36 or 10.7 times FY18 forward earnings.
