UOB stock outshines those of local rivals despite Thai exposure

FAR IN THE LEAD: UOB shares are up almost 6 per cent year to date, while both DBS and OCBC are in negative territory. Yet, UOB has a substantial presence in Thailand, while the other two banks have little exposure there.


    May 23, 2014

    UOB stock outshines those of local rivals despite Thai exposure

    EVEN though its share price dipped by nearly 1 per cent yesterday, United Overseas Bank (UOB) is still ahead of its Singapore banking peers in terms of stock performance this year.

    Some analysts are still trying to understand why, given UOB's exposure to Thailand, where the political crisis has now led to martial law being imposed.

    "We are watching developments in Thailand very closely, and will continue to take a prudent approach to growth there," said Jimmy Koh, who heads investor relations at UOB.

    "In the long term, we remain confident of South-east Asia's potential as it is grounded in strong fundamentals and backed by rising intra-regional trade and consumer affluence."

    UOB has a significant presence in Thailand through its subsidiary there, which has 155 branches. Last year, Thailand contributed 4 per cent to group profit before tax.

    In contrast, DBS Group and OCBC Bank have negligible exposure to Thailand.

    UOB's stock retreated 0.8 per cent to $22.37 yesterday but remains up nearly 6 per cent year to date.

    DBS closed at $16.96 yesterday, while OCBC edged down 0.1 per cent to $9.69. Year to date, DBS and OCBC are still in negative territory, down 0.5 per cent and 5 per cent respectively.

    One theory bandied about for UOB's outperformance is that the bank might split the stock - but that talk has been around for years and nobody takes it seriously, said a dealer.

    "We don't comment on market rumours or speculation," said UOB spokesman Tan Ping Ping.

    Many brokers have "buy" calls on UOB and DBS, but some have grown more cautious regarding UOB, in view of its share price run-up over the past few months. OCBC is less of a favourite because of its plans to acquire Hong Kong's Wing Hang Bank, which would be funded by raising equity and debt.

    "Honestly, I can't understand why UOB has been outperforming since the bank has been giving the most bearish guidance in relation to its peers," said one analyst.

    Since the release of its first-quarter results early this month, analysts have seen UOB as a proxy for Asean, and have been wary of the struggles that the bank itself has acknowledged.

    A deposits war has broken out in Indonesia, while competition in Malaysia is hotting up, said CIMB analyst Kenneth Ng.

    And a coup in Thailand only gave further cause for concern.

    Another analyst said: "Perhaps investors are weighing China risks (DBS, OCBC) and acquisition risk (OCBC) more unfavourably than Asean risk and Singapore housing risk (UOB)."

    Of the three banks, UOB has the least exposure to Greater China, a factor which has been seen favourably, given slowing growth in the world's second-largest economy.

    UOB has the largest mortgage portfolio of the three local banks, and falling property prices would increase the risk for borrowers, especially if interest rates rise from the currently low levels and if such a trend is coupled with a rise in unemployment.