UOB may have a case of “Marsha, Marsha, Marsha,” with Daiwa downgrading the stock because larger rival DBS “looks more attractive.”
Daiwa cut its call on UOB to Hold from Outperform in a note on Thursday after the Singapore bank reported net profit that was slightly above forecasts.
“We believe UOB looks fully valued vs. DBS which trades at lower 2018-20E price-to-earnings ratios of 9.6-12.4 times and with stronger operating-income and EPS growth vs. UOB, based on our forecasts,” Daiwa said.
Net profit for the first quarter rose 21 percent on-year to S$978 million, the smallest of Singapore’s three banks said in a filing to SGX before the market open on Thursday. The net interest margin (NIM) was 1.84 percent, up 11 basis points, on higher loan margin and interbank yields amid a rising interest rate environment and proactive balance sheet management, UOB said.
Daiwa raised its 2018-19 earnings per share (EPS) forecasts by 4-5 percent, mostly on lower credit cost assumptions of 19-21 basis points, compared with its previous forecast of 25-26 basis points. It also raised its 2018-20 dividend payout assumption to 50-54 percent, including the potential for special dividends, from its previous estimate of 47-48 percent.
That was in line with management saying it intended to manage excess capital via a higher dividend and keeping some capital for organic and inorganic growth opportunities, Daiwa noted.
But it added, “we see a high degree of dividend per share uncertainty (given the board’s potentially conservative stance) leading to ROE (return on equity) disappointment.”
It trimmed its target price to S$28.40 from S$29.30 after raising its cost-of-equity assumption.
UOB extended its recent declines, falling 1.15 percent to S$29.24 by 12:48 P.M. SGT on Friday.