

FIG Commercial Banks

Company report

Equity – Singapore

UOB (UOB SP) Buy: Stability – that is the best word to describe 3Q15

Buy Target price Share price Upside (%) Dec HSBC EPS (SGD) HSBC PE

(SGD) (SGD) 2014a 1.87 10.7

26.10 20.04 30.2 2015e 2016e 2.06 9.7

2.00 10.0

Performance

1M

3M

12M

Absolute (%) Relative^ (%)

8.0 -0.9

-12.7 -5.7

-8.9 -3.3

 3Q15 bottom line beats consensus  Valuations should limit downside risk to stock  Reiterate Buy with unchanged Gordon growth PB-based target price of SGD26.10 3Q15 bottom line beats consensus. In 3Q15, net profit rose 12% q-o-q, to SGD857m, on higher loan-related fees and trading income. Net profit was 6% ahead of consensus, but within our expectations. UOB declared a one-off SGD0.20 special DPS to commemorate its 80th anniversary (1% yield). Note that UOB took a SGD437m hit straight to its common equity from losses on its available-for-sale securities portfolio during 3Q15 (SGD0.27/sh). UOB explained that this is mainly for its long-term investment in China, which we suspect is its stake in Evergrowing Bank.

30 October 2015 Kar Weng LOO* Analyst The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch +65 66580621 [email protected] View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch MICA (P) 073/06/2015 MICA (P) 136/02/2015 MICA (P) 041/01/2015

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Stability – that is the word to describe 3Q15. Total loans were flat q-o-q. The soft growth was due partly to currency effects. That said, we would be much more worried if UOB were lending aggressively in such a soft environment. To us, what matters now is balance sheet protection rather than balance sheet growth. Loan deposit ratio was stable q-o-q, at 82%, with NIM also staying flat at 1.77%. The gross NPL ratio did creep up marginally, to 1.26% (versus 1.24% in 2Q15), but loan loss coverage remained stable, at 143%, with a credit charge of 0.32% of average net loans during the quarter (2Q15: 0.31%). Outlook. UOB sounds comfortable with its asset quality. It is not denying that NPLs could creep up, but it certainly sounds very confident that it has sufficient provisioning reserves to cushion NPL volatility. It is sticking strong to its 30-40bp net credit cost guidance versus our conservative 55bp assumption for 2016e. To us, the key challenge over the next 6-12 months is getting quality loan growth and maintaining NIM. On this front, UOB is sticking to its 5% loan growth guidance for 2015e on a constant-currency basis. As for NIM, UOB hopes to at least maintain it at the 1.77% level in 3Q15 by managing funding cost. It UOB will also test the market to see if it can raise credit spreads. Reiterate Buy. UOB is the worst-performing Singapore bank stock this year after falling 18% y-t-d versus an 11% decline in the FSSTI. This sell-down has brought valuations as low as 1x Dec 2016e BV and 10x 2016e EPS. UOB has tested these levels only three times since 2000. We believe valuations will provide downside support to the stock. Investors must be patient for a positive catalyst to lift the stock higher. This could come in the form of a Fed funds rate hike or sustained asset quality resilience.

^Index Index level RIC Bloomberg Source: HSBC

Straits Times Index 3,041 UOBH.SI UOB SP

Free float (%) Market cap (USDm) Market cap (SGDm) Source: HSBC

82% 23,036 32,355

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UOB (UOB SP) Commercial Banks 30 October 2015

Financials & valuation

Buy Financial ratios and assumptions (%)

Income statement(SGDm) Year to

12/14a

Interest income Interest expense Net interest income Net fees & commissions Other income Operating income Operating expense Pre-prov op profit (PPOP) Provision charges Associates & amortization Non-op items Profit before tax Taxation Minorities + preferences Attributable profit Core net profit

12/15e

12/16e

12/17e

Year to Gross yield Cost of funds Net interest margin Non-int inc/operating inc Net loans/deposits Cost/operating income ratio Cost/average assets Net provision/ avg net loans Gross NPLs/loans Loan loss coverage Effective tax rate Core ROA Core ROE

7,190 (2,632) 4,558 1,749 1,055 7,362 (3,146) 4,216 (635) 129 115 3,825 (561) (122) 3,142 3,027

7,989 (2,940) 5,049 1,924 1,108 8,081 (3,461) 4,620 (680) 116 – 4,057 (609) (124) 3,324 3,324

8,714 (3,287) 5,427 2,212 1,163 8,802 (3,807) 4,996 (1,167) 118 – 3,947 (592) (124) 3,231 3,231

9,214 (3,470) 5,744 2,434 1,221 9,399 (4,111) 5,288 (1,000) 121 – 4,409 (661) (126) 3,622 3,622

27,389 195,903 30,076 233,750 20,953 289,754 266,880 306,736

29,526 207,404 31,580 250,113 21,163 309,139 283,939 326,353

31,607 217,022 33,159 265,119 21,374 327,144 299,664 344,595

33,289 227,613 34,817 281,026 21,588 345,635 316,312 363,380

178,792 12.6% 16.9%

189,285 13.0% 17.3%

199,865 13.4% 17.5%

210,760 13.8% 17.7%

1.89 1.89 0.75 14.50 17.09

2.06 2.06 0.73 15.83 18.42

2.00 2.00 0.71 17.13 19.72

2.24 2.24 0.79 18.15 20.77

12x 8.8x 1.6x 1.3x 3.3%

11x 7.5x 1.4x 1.2x 3.3%

10x 6.7x 1.3x 1.1x 3.7%

9x 6.2x 1.2x 1.1x 4.1%

Balance sheet summary (SGDm) Ordinary equity Customer loans (Net) Investment in securities Customer deposits Debt issued Interest earning assets Interest bearing liabilities Total assets Capital (%) RWA (SGDm) Transitional equity Tier 1 CAR Per share data (SGD) Core EPS Core diluted EPS DPS NTA BV Valuations multiples PE P/PPoP P/NTA PB Dividend yield (%) Price relative

2014 UOB

Source: HSBC

2

2015 Rel to STRAITS TIMES INDEX

26.00 25.00 24.00 23.00 22.00 21.00 20.00 19.00 18.00 17.00 2016

12/15e

12/16e

12/17e

2.69 1.05 1.71 38.1 83.8 42.7 1.1 0.34 1.18 146 15 1.06 11.7

2.67 1.07 1.69 37.5 82.9 42.8 1.1 0.34 1.25 148 15 1.08 11.7

2.74 1.13 1.71 38.3 81.9 43.2 1.1 0.55 1.35 162 15 1.00 10.6

2.74 1.13 1.71 38.9 81.0 43.7 1.2 0.45 1.30 177 15 1.05 11.2

8.3 7.9 9.5 15.7 10.6 7.8 9.6 8.6 32.0 10.3 5.5 6.6 8.5 0.0 11.3

6.7 6.4 6.0 7.0 10.8 8.1 9.8 10.0 7.0 9.6 6.1 5.6 9.0 -3.2 7.8

5.8 5.6 5.0 6.0 7.5 11.3 8.9 10.0 71.8 8.1 -2.7 -2.7 -2.8 -2.8 7.0

5.7 5.5 5.0 6.0 5.9 8.3 6.8 8.0 -14.3 5.9 11.7 11.7 12.1 12.1 5.3

1.54 0.95 2.49 -1.06 1.43 -0.21 0.08 1.21 -0.19 -0.01 1.06 11.5 12.2

1.60 0.96 2.55 -1.09 1.46 -0.21 0.04 1.24 -0.19 -0.01 1.05 11.1 11.7

1.62 1.01 2.62 -1.13 1.49 -0.35 0.04 1.14 -0.18 -0.01 0.96 11.0 10.6

1.62 1.03 2.66 -1.16 1.49 -0.28 0.03 1.21 -0.19 -0.01 1.02 10.9 11.2

Growth (y-o-y, %) Earning assets Total assets Gross loans Deposits Net interest income Non-interest income Operating income Total cost Provision charges Pre-provision profit PBT Net profit before pref div Core diluted EPS DPS BVPS ROE decomposition (%) Net Interest Inc / Avg assets Non-Interest Inc / Avg assets Operating Income / Avg assets Operating Expenses / Avg assets PPOP / Avg assets Provisions / Avg assets Non-op items / Avg assets Op Inc before Tax / Avg assets Taxation / Avg assets Minorities / Avg assets Attributable profit / Avg assets Leverage (x) ROE Source: HSBC estimates

26.00 25.00 24.00 23.00 22.00 21.00 20.00 19.00 18.00 17.00 2013

12/14a

Priced at close of 29 October 2015

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UOB (UOB SP) Commercial Banks 30 October 2015

Fig 1: UOB: 3Q15 results SGDm, year-end Dec

3Q14

4Q14

1Q15

2Q15

3Q15

Y-o-y

Q-o-q

9M14

9M15

Y-o-y

Interest income Interest expense Net interest income Non-interest income Total income Operating costs Pre-provision profit (PPoP) Loan loss provision Associates & Amortization Exceptionals Pre-tax profit Core pre-tax profit Tax Minorities Net profit Core net profit

1,811 (656) 1,155 816 1,971 (800) 1,171 (162) 37 1,046 1,046 (176) (3) 867 867

1,872 (704) 1,168 682 1,850 (805) 1,045 (166) 43 922 922 (134) (2) 786 786

1,903 (702) 1,201 755 1,956 (852) 1,104 (169) 4 939 939 (133) (4) 802 802

1,938 (726) 1,212 714 1,926 (876) 1,050 (152) 40 938 938 (173) (3) 762 762

1,951 (716) 1,235 850 2,085 (904) 1,181 (160) 28 1,049 1,049 (189) (3) 857 857

8% 9% 7% 4% 6% 13% 1% -1% -24% NM 0% 0% 7% 0% -1% -1%

1% -1% 2% 19% 8% 3% 12% 5% -30% NM 12% 12% 9% 0% 12% 12%

5,317 (1,928) 3,389 2,124 5,513 (2,342) 3,171 (469) 86 115 2,903 2,788 (426) (13) 2,464 2,348

5,792 (2,144) 3,648 2,319 5,967 (2,632) 3,334 (481) 72 2,925 2,925 (495) (10) 2,419 2,421

9% 11% 8% 9% 8% 12% 5% 3% -16% NM 1% 5% 16% -23% -2% 3%

Key financial ratios Gross NPL Loan Loss Coverage Net provisions / Avg net loans Net loans / Deposits Gross loan growth y-o-y Gross loan growth q-o-q Deposit growth y-o-y Deposit growth q-o-q CASA / total deposits Assets / Equity (x) Fully loaded Core Tier I CAR Core ROE PPoP ROE Core ROA PPoP ROA Non-int inc / Total inc Cost income ratio Effective tax rate Yield on earning assets Cost of funds Net interest margin

1.17% 147% 0.34% 86% 11% 1% 14% 4% 41% 11.5x 12.6% 17.0% 13.3% 17.9% 1.2% 1.6% 41% 41% 17% 2.68% 1.01% 1.71%

1.18% 146% 0.34% 84% 10% 2% 9% 4% 42% 11.2x 12.6% 16.9% 11.7% 15.5% 1.0% 1.4% 37% 44% 15% 2.70% 1.05% 1.69%

1.20% 147% 0.34% 83% 8% 2% 11% 2% 41% 10.9x 12.8% 17.1% 11.4% 15.8% 1.0% 1.4% 39% 44% 14% 2.78% 1.06% 1.76%

1.24% 144% 0.31% 82% 5% 0% 12% 1% 42% 10.9x 12.5% 16.8% 10.7% 14.7% 1.0% 1.3% 37% 45% 18% 2.83% 1.09% 1.77%

1.26% 143% 0.32% 82% 4% 0% 9% 1% 42% 11.5x 12.2% 16.4% 12.2% 16.8% 1.1% 1.5% 41% 43% 18% 2.80% 1.06% 1.77%

1.17% 147% 0.34% 86% 11% 1% 14% 4% 41% 11.5x 12.6% 17.0% 12.4% 16.7% 1.1% 1.4% 39% 42% 15% 2.69% 1.01% 1.72%

1.26% 143% 0.32% 82% 4% 0% 9% 1% 42% 11.5x 12.2% 16.4% 11.7% 16.0% 1.0% 1.4% 39% 44% 17% 2.80% 1.07% 1.77%

Source: Company, HSBC

3

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UOB (UOB SP) Commercial Banks 30 October 2015

Fig 2: UOB: NPL trends SGDm, year-end Dec

3Q14

4Q14

1Q15

2Q15

3Q15

Q-o-q

Y-o-y

Gross NPLs, by geography Singapore Malaysia Thailand Indonesia Greater China Others Gross NPL

805 400 259 275 118 432 2,289

864 386 267 298 124 419 2,358

922 388 292 313 127 400 2,442

931 423 289 335 149 377 2,504

1,046 378 238 372 166 351 2,551

12% -11% -18% 11% 11% -7% 2%

30% -6% -8% 35% 41% -19% 11%

Gross NPLs, by industry Transport & communication Building & construction Manufacturing Non-bank FIs General commerce Professionals & individuals Housing loans Others Gross NPL

699 143 309 107 287 201 502 41 2,289

714 226 280 109 265 209 507 48 2,358

757 221 301 108 273 229 501 52 2,442

773 223 262 112 280 252 541 61 2,504

825 244 208 103 309 289 532 41 2,551

7% 9% -21% -8% 10% 15% -2% -33% 2%

18% 71% -33% -4% 8% 44% 6% 0% 11%

Gross NPL ratio, by industry Transport & communication Building & construction Manufacturing Non-bank FIs General commerce Professionals & individuals Housing loans Others Gross NPL

7.80% 0.57% 1.81% 0.36% 1.07% 0.79% 0.93% 0.45% 1.17%

7.13% 0.58% 1.63% 0.68% 0.98% 0.80% 0.93% 0.50% 1.18%

7.43% 0.56% 1.76% 0.64% 0.99% 0.87% 0.90% 0.52% 1.20%

8.06% 0.55% 1.53% 0.71% 1.02% 0.98% 0.98% 0.58% 1.24%

8.30% 0.56% 1.33% 0.73% 1.05% 1.13% 0.97% 0.40% 1.26%

Source: Company, HSBC

Fig 3: UOB: Loan deposit ratios by currency (%) 110% SGD

USD

MYR

IDR

Group LDR

100% 90% 80% 70% 60% 50% 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 Source: Company, HSBC

4

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UOB (UOB SP) Commercial Banks 30 October 2015

Fig 4: UOB: Loan growth and composition SGDm, year-end Dec

3Q14

4Q14

1Q15

2Q15

3Q15

Q-o-q SGDm

Q-o-q %

Y-o-y SGDm

Y-o-y Composition % %

Manufacturing Building & construction Housing General commerce Transport & communications Financial institutions Professionals Others Gross loans

17,080 17,139 17,080 25,128 38,672 39,765 53,755 54,711 55,830 26,782 27,119 27,494 8,963 10,014 10,185 29,568 16,039 16,792 25,530 26,008 26,184 9,137 9,641 9,992 195,943 199,343 203,322

17,164 40,648 55,295 27,550 9,590 15,834 25,829 10,497 202,407

15,622 43,616 54,915 29,369 9,943 14,088 25,533 10,143 203,229

(1,542) 2,968 (380) 1,819 353 (1,746) (296) (354) 822

-9% 7% -1% 7% 4% -11% -1% -3% 0%

(1,458) 18,488 1,160 2,587 980 (15,480) 3 1,006 7,286

-9% 74% 2% 10% 11% -52% 0% 11% 4%

8% 21% 27% 14% 5% 7% 13% 5% 100%

Singapore Malaysia Thailand Indonesia Greater China Others Gross Loan

109,148 109,700 114,467 26,094 25,768 25,909 10,456 10,836 11,399 10,673 11,100 10,975 24,173 25,308 24,263 15,400 16,631 16,310 195,944 199,343 203,323

115,024 25,325 11,003 10,829 23,915 16,310 202,406

114,260 23,658 11,151 10,796 25,064 18,300 203,229

(764) (1,667) 148 (33) 1,149 1,990 823

-1% -7% 1% 0% 5% 12% 0%

5,112 (2,436) 695 123 891 2,900 7,285

5% -9% 7% 1% 4% 19% 4%

56% 12% 5% 5% 12% 9% 100%

Source: Company, HSBC

Fig 5: UOB: Balance sheet SGDm, year-end Dec

3Q14

4Q14

1Q15

2Q15

3Q15

Cash & placements with central banks Due from banks Investment in securities Net loans Other assets Associates Goodwill and intangible assets Property & other fixed assets Total assets

34,226 29,851 29,608 192,584 8,778 1,154 4,146 2,363 302,710

35,083 28,692 30,076 195,903 9,256 1,189 4,149 2,388 306,736

41,789 26,536 27,553 199,735 10,232 1,198 4,151 2,404 313,598

38,741 25,658 29,327 198,798 9,608 1,079 4,143 2,724 310,078

44,733 27,600 29,730 199,587 13,729 1,101 4,138 2,738 323,356

Deposits of non-bank customers Due to banks Bills and drafts payable Debt issued Non-int bearing liabilities Total liabilities

224,365 15,467 1,423 23,004 9,641 273,900

233,750 11,226 951 20,953 10,084 276,964

239,410 12,939 696 18,696 10,816 282,557

241,485 10,958 609 16,834 9,480 279,366

244,630 14,884 563 19,849 13,069 292,995

198 3,686 2,180 22,746 28,810

203 3,712 2,180 23,677 29,772

208 3,702 2,180 24,948 31,038

164 3,701 2,180 24,667 30,712

157 3,702 2,180 24,324 30,363

Minority interests Share capital Preferred equity Other reserves S/holders funds & minorities Source: Company, HSBC

5

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UOB (UOB SP) Commercial Banks 30 October 2015

UOB: Quarterly trends Fig 6: UOB: Loan and deposit growth y-o-y% Gross loans YoY%

Fig 7: UOB: Loan deposit ratio (%)

Deposits YoY%

30%

95%

Net loans / Deposits

90%

25% 20%

85%

15%

80%

10% 75%

Source: Company, HSBC

Fig 8: UOB: Net interest margins (%)

Fig 9: UOB: Non-interest income / Total income (%)

NIM

1Q15

1Q14

1Q13

1Q12

1Q11

1Q10

1Q09

1Q08

1Q07

1Q06

1Q05

70%

Source: Company, HSBC

2.6% 2.5% 2.4% 2.3% 2.2% 2.1% 2.0% 1.9% 1.8% 1.7% 1.6%

Non-int income / Total income

45% 40% 35% 30% 25%

Fig 11: UOB: Credit cost / Average net loans (%)

Source: Company, HSBC

Source: Company, HSBC

1Q13

1Q12

1Q11

1Q15

1Q14

1Q13

1Q12

1Q11

1Q10

1Q09

1Q08

1Q07

0%

1Q06

50%

1Q05

2%

1Q04

70%

1Q10

4%

90%

1Q09

6%

110%

1Q08

8%

130%

1Q07

150%

1Q06

10%

1Q05

170%

Credit cost/Avg net loans

2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0%

1Q04

Gross NPL (RHS)

1Q15

Fig 10: UOB: Gross NPL and Loan loss coverage (%)

1Q14

Source: Company, HSBC

1Q15

Source: Company, HSBC

1Q14

1Q13

1Q12

1Q11

1Q10

1Q09

1Q08

1Q07

1Q06

1Q05

1Q04

1Q15

1Q14

1Q13

1Q12

1Q11

1Q10

1Q09

1Q08

1Q07

1Q06

1Q05

1Q04

20%

Loan loss coverage (LHS)

6

1Q15

1Q14

1Q13

1Q12

1Q11

1Q10

1Q09

1Q08

1Q07

1Q06

1Q05

1Q04

0% -5%

1Q04

5%

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UOB (UOB SP) Commercial Banks 30 October 2015

Fig 12: UOB: PPoP ROE and ROE (%)

Fig 13: UOB: PPoP ROA and ROA (%)

PPoP RoE

28% 26% 24% 22% 20% 18% 16% 14% 12% 10% 8%

Core RoE

PPoP RoA

2.2%

Core RoA

2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8%

Source: Company, HSBC

1Q15

1Q14

1Q13

1Q12

1Q11

1Q10

1Q09

1Q08

1Q07

1Q06

1Q05

1Q04

1Q15

1Q14

1Q13

1Q12

1Q11

1Q10

1Q09

1Q08

1Q07

1Q06

1Q05

1Q04

0.6%

Source: Company, HSBC

Valuations Fig 14: SG banks: Sector valuation table Bank

Rating 29-Oct Target price price

DBS Buy OCBC Hold UOB Buy Sector avg

__ PB (x) ___

_ RoE (%)___

Div yield (%)

_ PE (x) __ 2014-16e Mkt Avg trdg core EPS cap value

P/PPoP (x) _

(SGD)

(SGD)

2015e

2016e

2015e

2016e

2015e

2016e

2015e

2016e

17.33 9.08 20.04

20.00 10.20 26.10

1.1 1.1 1.1 1.1

1.0 1.1 1.0 1.0

12.0 12.1 11.7 11.9

10.6 10.3 10.6 10.7

3.6 4.1 3.6 3.8

3.6 3.8 3.5 3.7

7.2 7.7 7.0 7.3

6.7 7.5 6.5 6.8

2015e 2016e CAGR (%) USDbn USDm

9.6 10.0 9.7 9.4

9.7 10.6 10.0 9.8

7 (4) 3

31 27 23

72 43 48

Source: Bloomberg, HSBC

Fig 15: UOB: One-year forward PB (x) 2.4x 2.2x 2.0x 1.8x 1.6x 1.4x 1.2x -1SD: 1.1x 1.0x

Fig 16: UOB: One-year forward PE (x) 22x +1SD: 1.7x Avg: 1.4x

20x 18x +1SD: 15x

16x

Avg: 13x

14x 12x 10x

-1SD: 11x

8x

0.8x

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-14

Jan-12

Jan-10

Jan-08

Jan-06

Jan-04

Jan-02

Jan-00

Source: Bloomberg, HSBC

Jan-02

6x

0.6x

Source: Bloomberg, HSBC

Valuation and risks UOB (UOB SP, Buy, TP SGD26.95): We value UOB at SGD26.95 per share based on an intrinsic PB multiple derived from the Gordon growth model. Our target price assumes a 12.3% sustainable RoE, a 9.4% cost of equity, and a 4% growth rate. This implies 1.5x December 2015e BV and 13x 2015e EPS. Our target price implies potential upside of 30.2%; hence, we maintain Buy rating on the stock. Downside risks to our estimates and rating include a sustained low interest rate environment, an unexpected deterioration in asset quality, and a significant slowdown in non-interest income.

7

UOB (UOB SP) Commercial Banks 30 October 2015

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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Kar Weng Loo

Important disclosures Equities: Stock ratings and basis for financial analysis

HSBC believes an investor’s decision to buy or sell a stock should depend on individual circumstances such as the investor’s existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating because research reports contain more complete information concerning the analysts’ views and the basis for the rating. From 23rd March 2015 HSBC has assigned ratings on the following basis:

The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12 months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce. Our ratings are re-calibrated against these bands at the time of any ‘material change’ (initiation or resumption of coverage, change in target price or estimates). Upside/Downside is the percentage difference between the target price and the share price. Prior to this date, HSBC’s rating structure was applied on the following basis:

For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The target price for a stock represented the value the analyst expected the stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral. *A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month’s average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock’s status to change.

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UOB (UOB SP) Commercial Banks 30 October 2015

Rating distribution for long-term investment opportunities As of 30 October 2015, the distribution of all ratings published is as follows: Buy 46% (31% of these provided with Investment Banking Services) Hold

40%

(28% of these provided with Investment Banking Services)

Sell

14%

(17% of these provided with Investment Banking Services)

For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial analysis” above.

Share price and rating changes for long-term investment opportunities Recommendation & target price history

UOB (UOBH.SI) share price performance SGD vs HSBC rating history

From

26 24 22 20 18 16 14 12 10 8

Source: HSBC

Oct-15

Oct-14

Oct-13

Oct-12

Oct-11

Oct-10

Overweight Neutral Underweight Neutral Overweight Target price Price 1 Price 2 Price 3 Price 4 Price 5 Price 6 Price 7 Price 8 Price 9

To

Date

Neutral Underweight Neutral Overweight Buy Value

27 February 2013 2 May 2013 10 July 2013 23 July 2014 25 March 2015 Date

19.65 21.60 20.55 22.35 21.70 21.90 26.80 26.95 26.10

27 February 2013 26 April 2013 11 July 2013 1 August 2013 15 January 2014 17 February 2014 23 July 2014 28 October 2014 22 October 2015

Source: HSBC

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UOB (UOB SP) Commercial Banks 30 October 2015

HSBC & Analyst disclosures Disclosure checklist Company UOB

Ticker

Recent price

Price date

Disclosure

UOBH.SI

20.04

29-Oct-2015

2, 6, 7

Source: HSBC

1 2 3 4 5 6 7 8 9 10 11

HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. As of 30 September 2015 HSBC beneficially owned 1% or more of a class of common equity securities of this company. As of 30 September 2015, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. As of 30 September 2015, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. As of 30 September 2015, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. A covering analyst/s has received compensation from this company in the past 12 months. A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis. Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues. Whether, or in what time frame, an update of this analysis will be published is not determined in advance. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

Additional disclosures 1 2 3

10

This report is dated as at 30 October 2015. All market data included in this report are dated as at close 29 October 2015, unless otherwise indicated in the report. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC’s analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC’s Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

UOB (UOB SP) Commercial Banks 30 October 2015

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Disclaimer Legal entities as at 30 May 2014: Issuer of report ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC The Hongkong and Shanghai Securities (Taiwan) Corporation Limited; ‘CA’ HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Banking Corporation Limited, Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Singapore Branch Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia 21 Collyer Quay #03-01 Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and HSBC Building Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ Singapore 049320 HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Website: www.research.hsbc.com Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch This document has been issued by The Hongkong and Shanghai Banking Corporation Limited Singapore Branch (“HSBC”) for the information of its institutional customers and/or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289)(“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA; it is not intended for and should not be distributed to retail customers. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a representative of “The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch” in respect of any matters arise from, or in connection with this report. The information and materials contained herein are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding the accuracy or fitness for a purpose is given in connection with such information and materials. This document does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient. It is for information purposes only and is not intended to nor will it create or induce the creation of any binding legal relations. It does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. Independent advice should be sought before making any investments or entering into any transaction in relation to any securities mentioned herein. In no event will any member of the HSBC group be liable to the recipient for any direct or indirect or any other damages of any kind arising from or in connection with reliance on any information and materials herein. Members of the HSBC group and their associates, directors, officers and/or employees may have positions in, and may effect transactions in the securities or investment instruments covered herein, and may also perform or seek to perform broking, investment banking, corporate finance or other services for the issuers of the securities mentioned herein. All enquiries by recipients in Hong Kong must be directed to your HSBC contact in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited is regulated by the Hong Kong Monetary Authority. In Hong Kong it is for the information of its institutional and professional investor (as defined by Securities and Future Ordinance (Chapter 571)) customers only; it is not intended for and should not be distributed to retail customers in Hong Kong. If it is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Division of HSBC only and are subject to change without notice. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act as market maker or have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. In Korea, this publication is distributed by either The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch (“HBAP SLS”) or The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch (“HBAP SEL”) for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All US persons receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report. In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a representative of “The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch” in respect of any matters arise from, or in connection with this report. Further, without prejudice to any of the foregoing disclaimers, where this material is distributed to accredited investors or expert investors as defined in Regulation 2 of the Financial Advisers Regulations (“FAR”) of the Financial Advisers Act (Cap. 110) of Singapore (“FAA”), The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch is exempted by Regulation 35 of the FAR from the requirements in Section 36 of the FAA mandating disclosure of any interest in securities referred to in this material, or in their acquisition or disposal. Recipients who do not fall within the description of persons under Regulations 34 and 35 of the Financial Advisers Regulations should seek the advice of their independent financial advisor prior to taking any investment decision based on this document or for any necessary explanation of its contents. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR. In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. It may not be further distributed in whole or in part for any purpose. In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed “Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or “research”), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments). © Copyright 2015, The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited Singapore Branch. MICA (P) 073/06/2015 , MICA (P) 136/02/2015 and MICA (P) 041/01/2015

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