Is UOB's share price overvalued?

PhillipCapital downgrades its investment outlook due to what it sees as "unjustifiable" higher returns.

The brokerage firm also sees cracks in the Singaporean bank's potential dividend yields based on most recent earnings trends, which predominantly disappointed, and now cast doubt on a stellar 1Q12 results.

Here's more from PhillipCapital:

We feel that UOB’s current share price is over priced based on the following factors:

- Based on our target price of S$17.50, current price has a downside potential of -6.5% including dividends

- UOB’s share price has rose 7.9% since the last results announcement as at 27 Feb 2012. Although 4Q11 earnings improved q-q from a weak 3Q11 earnings, it was below both our and market’s expectation.

- In addition, 2Q11 and 3Q11 results were below expectations, and high earnings surprise above our 1Q12 forecast of S$622 million, which is in line with consensus, may be required to justify the current high price.

- On a relative comparison, OCBC and DBS have recently traded largely in line with the STI, although DBS’s share price had previously dropped due to negative reactions to the proposed acquisition of Danamon. DBS has since recovered likely attributable to strong 1Q12 earnings. UOB’s higher returns are however not justifiable.

- Dividend yields are no longer as attractive at current high price. A full year dividend of S$0.60, similar to dividends given in FY2011, would represent a yield of 3.1%. We calculate dividend yields of DBS and OCBC to be 3.9% and 3.3% respectively based on FY2011 dividends and current prices.

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