UOB – Conservatism prevails.
- Maintain HOLD call but target price raised to S$25.50
- Stocks are set the start the week lower as the possibility of “Grexit” takes a big spike up over the weekend.
- First, Greece has call for a referendum to be held this weekend whereby the people will decide whether they want to accept the bailout terms of the creditors so as to unlock the bailout funds and remain in the Eurozone.
- Next, Greece has imposed capital controls to prevent a rout on banks after the ECB cut emergency funds. The banks remain closed at least for a week until after the referendum.
- On a more positive note, PBOC announced Friday it would cut 1-year lending rate by 25bps to 4.85% and 1-year deposit rate by 25bps to 2%, effective 28 Jun, and also reduce RRR for qualified lenders by 50bps. The rate cuts are aimed at reducing funding cost for the real economy and financial institutions, and to stabilize economic growth during economic restructuring.
- Regional indices have started the week more than 1% lower. Expect the 3270 support level for the STI to be tested.
- This s also a hectic week for US economic data releases that culminates with the closely watched June job numbers scheduled for release on Thursday. Consensus expects a 227k (previous month 280k) change to non-farm payrolls with the unemployment rate dipping to 5.4% (previous month 5.5%).
- UOB has been known for its conservative growth but we believe the market may have overlooked the lack of its fee income differentiation as well as Greater China presence.
- We believe over time, regionalisation beyond ASEAN would need to improve to prompt a re-rating for the bank.
- In addition, a stronger traction in non-interest income away from loan-related activities could add a re-rating sentiment.
- We maintain our HOLD call but target price raised to S$25.50 (9% upside) (Prev S$ 23.10).
(Yeo Kee Yan, Ling Lee Keng)
Source: DBS Group Research
