• Stock has outperformed peers
• Expecting slower 1Q, but better 2H
• Raised FV to S$22.40

UOB has outperformed peers

Since the start of the year, UOB has outperformed both its peers in the local banking sector. The stock has gained 3.7% YTD versus -1.5% for the industry average (range from -5.5% to +3.7%). In addition, it has recovered the most from this year’s lows, up 13.5% versus the average of 8.8% for the sector. This means that the stock has also outperformed the Straits Times Index (STI) as well as the FTSE Straits Times Financials Index which recorded +1.5% YTD and +0.0% YTD (flat), respectively.

Last quarter’s results were ahead of expectations; guidance was positive As a recap, UOB delivered better-thanexpected earnings last quarter, with net earnings of S$773m, and an improvement in Net Interest Margin (NIM) from 1.71% in 3Q13 to 1.74% in 4Q13. In addition, management guided for high single-digit loans growth and double-digit growth in fee income in FY14.

Expecting 1Q earnings of S$724m; fair value of S$22.40

UOB will be releasing its 1Q14 results on 30 Apr. We are expecting 1Q net earnings of S$724m, down 6% QoQ and flat YoY. We are projecting slightly stronger 2H than 1H (52% versus 48% of total earnings), and as such, we are expecting both Net Interest Income and Non-interest Income to come off QoQ in 1Q. For the full year, we are expecting higher operating expenses as it grows its income, and this will require further investments into developing its businesses and human capital. We are also expecting FY14 allowances to be slightly off from last year’s level at S$412m. Recently, the market seems to favor quality stocks, a reflection of the flight to quality, and we are increasing our peg back to our historical level of 1.4x now that the political tensions in Thailand and Indonesia have waned. As this level, we are increasing our fair value estimate from S$20.94 to S$22.40. Maintain HOLD.

Source: OCBC Research - 15 Apr 2014