UOB is the best managed on liquidity risks among the Singapore banks

Maintain Neutral and target price of S$20.38. We appraise UOB as being the best managed of the three banks for liquidity risks. Its capital buffers are also the highest among the trio. Such dynamics means that investors associate UOB with defensiveness; UOB’s YTD outperformance could be attributed to this, we believe. We do not disagree that UOB is the ‘comfort stock’ in the Singapore banking space; yet, if a banking crisis erupts, all financial stocks could underperform.

We recently turned cautious on Singapore banks, on signs of liquidity strains in the world. We remain Neutral on UOB, with unchanged earnings estimates and an unchanged target price of S$20.38 (1.5x P/BV, GGM).

Conscious of limitations on liabilities side. Our main takeaway from a recent UOB non-deal road show was the bank’s consciousness of the limitations on the liabilities side of its balance sheet. Regional growth is intact, though growth limitations today stem not only from capital limitations but increasingly, liquidity constraints. Efforts to build a deposit franchise and integrate regional operations are all essential to position UOB for steady growth ahead.

Target entry. UOB’s steady franchise-building is well appreciated but could be overshadowed by macro concerns in the short term. We highlight UOB as a franchise to own should equity markets crack. UOB bottomed out at 0.9x P/BV in 2009. We identify must-own levels at below 1x CY12 P/BV (S$14.66).