SINGAPORE (July 31): OCBC Investment Research is maintaining its “hold” recommendation on United Overseas Bank (UOB) with a higher fair value estimate of $23 after factoring in higher FY17 projections to account for higher fee income in 2H17.
The bank recently reported a 5.5% rise in 2Q earnings to $845 million, beating the consensus estimate of $816 million with its management guiding for flat or slightly higher net interest margin (NIM) for the full year, recalls lead analyst Carmen Lee in a report last Friday.
Noting the management’s view of a bottoming local residential market, Lee highlights that while the Singapore Property Price Index recorded its 15th quarter of decline for the June quarter, it is also the slow pace of quarterly decline in the past few years.
In particular, the analyst has singled out UOB’s Wealth Management unit as a “clear winner” in the latest quarter after having posted a 24% y-o-y and 7% q-o-q increase in contribution to $136 million, the largest contributor to the bank’s fee and commission income for the quarter.
“While cost and some technology-related expenses are likely to go up, we expect the cross-selling of more products in its key markets to provide organic growth for its Wealth unit,” says Lee.
“At current price, we believe that any benefits from a potential hike in interest rate later in the year have already been priced in and will turn buyers of the stock at $22.00 or lower.”
Update: Shares in UOB closed 6 cents at $23.99 on Monday.
