Details at a glance
+ Gain scale in the four regional markets. With purchase of Citigroup’s consumer banking franchise, UOB is able to accelerate its growth by “five years” in these four countries, where UOB already has a significant presence in. UOB’s management has mentioned that it expects some slowdown in Singapore and North Asia, so this acquisition would position them to further grow their ASEAN presence.
+ EPS and ROE-accretive. The acquisition is immediately accretive to UOB’s EPS and ROE excluding one-off transaction costs, which would mainly be incurred over the first two years. If the one-off costs are to be included, the group would be EPS and ROE-accretive by 2023. UOB has also targeted a higher ROE of >13% and RORWA of ~2% by 2026 with this acquisition.
+ 50% dividend payout ratio to be maintained. With the purchase, UOB’s CET1 ratio has dropped by 70bps to 12.8%. Nonetheless, UOB has mentioned that it is “comfortable” with maintaining the current dividend policy of a 50% dividend payout ratio.
– One-off costs of S$700mn. The acquisition consists of one-off costs amounting to S$700mn. This includes a cost of S$200mn in tax and stamp duties, as well as expenses for integration and branding. Nonetheless, including these costs, UOB expects to be EPS and ROE-accretive by 2023.
Maintain ACCUMULATE with a higher target price of S$31.30, from S$29.00
We raise FY21e earnings by 3.8% as we increase NIM estimates for FY21e. We now assume 1.26x FY21e P/BV in our GGM valuation, up from 1.17x, as we raise our ROE estimates to 10.2%.