United Overseas Bank Ltd - Still our favourite

Monday, June 8, 2009

Although UOB has been an outperformer since our upgrade in mid-April, we continue to prefer it to its peers. We believe there could be upside surprises to its book value from a reversal of MTM losses in its AFS portfolio. With equity markets having rallied so strongly and credit spreads having come off so sharply, the potential for a BV spike is significant. We maintain our S$16.18 target price (1.7x CY09 P/BV) and Outperform rating.

We worry less over the fact that UOB's P/BV has approached its historical P/BV means, because of its book-value surprise potential. We believe the first catalyst for UOB could come in July when US banks announce large MTM gains. The second catalyst could come in early August when UOB itself unveils large MTM gains.


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