Union National Bank -Equity Report -07-06-2012

12-Month Fair Value: AED 3.90
Recommendation: Buy – Risk Level**: 3

We maintain our “Buy” recommendation on UNB with a fair value per share of AED 3.90. this is 5% above our prior fair value and 39% above the last closing price, as the bank continues to trade at a deep discount with a 2012 P/B of 0.5x and a P/E of 4.4x, compared with multiples of 0.9x and 7.2x, respectively, for its UAE peers. UNB’s stock has underperformed its peers declining by 3%YTD, compared to a 3% YTD increase in the Abu Dhabi banking index. UNB’s 1Q2012 results were broadly in line with our estimates in terms of operating income and loan growth. However, a major downside risk to UNB is the continued pressure on its asset quality indicators, which weakened more than expected in 1Q2012, as NPLs rose by 12% QoQ.