Analysts from CGS-CIMB Research, OCBC Investment Research, Maybank Kim Eng, PhillipCapital and RHB Group Research have expressed optimism on United Overseas Bank (UOB) after the bank reported 43% higher earnings of $1.0 billion for the 2QFY2021 on Aug 4.
The analysts from all five brokerages have kept “accumulate”, “add” or “buy” on UOB. Maybank Kim Eng analyst Thilan Wickramasinghe has kept his target price of $29.34 as he sees “cautious resilience” from the bank.
UOB’s profit after tax (PAT) stood in line with his full-year expectations and above that of consensus’ estimates.
While operating conditions are improving especially in Singapore, North Asia and other developed markets, Wickramasinghe notes that the group’s exposure in Southeast Asia may take longer to recover given the new rounds of lockdowns and a rising number of Covid-19 infections.
“Nevertheless, strong provisioning and capital levels should provide sufficient offset for this risk,” he writes in an Aug 4 report.
UOB’s reversion to its 50% dividend payout ratio policy is positive. As such, Wickramasinghe believes that the group will meet his FY2021 dividend estimate of $1.20.
He has also kept the rest of his estimates unchanged, although he estimates that gross non-performing loans (NPLs) will rise from 1.5% in FY2019 to 1.6% in FY2021.
“Falling interest rates will drive net interest margins (NIMs) to fall from 1.74% in FY2019 to 1.54% by FY2021,” he says.
The research team at RHB have similarly kept their target price of $30.20 unchanged as UOB’s earnings for the half-year period stood slightly ahead of expectations.
The team has also upped its earnings estimates for the FY2021 to FY2023 by 4% to 5% after taking into account the lower credit costs.
On the back of the higher dividends posted for the 1HFY2021, RHB’s team has upped its dividend estimate for the FY2021 to $1.19 from 96 cents.
CGS-CIMB analysts Andrea Choong and Lim Siew Khee have increased their target price on UOB to $29 from $28.84 previously as the bank’s results stood in-line with its estimates at 50% of its FY2021 forecasts.
“There were two positive surprises in 2QFY2021– higher 60 cents interim dividends and reduction in management’s credit cost guidance for FY2021 to 25 basis points (30 basis points previously),” write the analysts in an Aug 4 report. “Both are reflective of UOB’s view of an acceleration in economic recovery going into FY2022 and its confidence in having set aside sufficient impairment reserves (inclusive of $1.2 billion in management overlays as of 2QFY2021) to weather potential asset quality deterioration, if any.”
The analysts also see the bank’s wealth management fees settling at a higher level as it sees its wealth management segment as its key driver of non-interest income growth ahead.
“UOB’s initial progress in strengthening its wealth franchise is promising, with wealth fees rising to an average $220 million/quarter in 1HFY2021 vs. $178 million in FY2020. We see scope in this being a new normal level,” they write.
Choong and Lim have raised their earnings per share (EPS) estimates for the FY2021 to FY2023 by 1-2%. They have also raised their dividend estimate for the FY2021 to $1.35 from $1.10, in line with the bank’s 50% dividend payout ratio policy.
The analysts have also lowered their credit cost forecast to 25 basis points from 28 basis points.
The research team from OCBC has increased their fair value estimate on UOB to $30.50, which implies 1.32 times price-to-book (P/B), just above its 10-year historical average multiple.
The higher fair value estimate also reflects a continued recovery outlook, although the team notes that recovery in the Southeast Asian region may be more muted due to the ongoing resurgence in Covid-19 cases.
Calling UOB’s 1HFY2021 results “solid" as it beat market expectations, the team says it sees scope for UOB’s share price to gain ground, “with potential catalysts from improving fee income momentum, loans growth recovery, stabilizing NIMs and easing concerns in its Asean loan book”.
“UOB’s ESG performance is in line with the median global industry rating, but lower than its domestic competitors, and hence our fair value does not incorporate any additional consideration/premium for its ESG aspects at this point,” it adds.
PhillipCapital’s senior research analyst Terence Chua has increased his target price to $29 from $28.70 after he has raised his earnings estimates on UOB by 7% for the FY2021.
The raised earnings estimates follow Chua’s higher fees and commissions estimates on the back of strong growth from wealth management, as well as income and loan-related fees.
To Chua, UOB’s earnings for the 2QFY2021 stood in line with his expectations at 25.5% of his forecast for the FY2021.
Similarly, the bank’s PATMI for the 1HFY2021 stood in line at 51% of his FY2021 forecast.
Chua also expands the bank’s wealth management fees, as well as loan-related and card fees to expand by 22% y-o-y.
The only downside to UOB’s results, notes Chua, is that its loans under moratorium have remained unchanged at 6%.
“We believe these belonged to weaker corporates which still require loan relief. As the moratoriums begin to expire, we could see an uptick in NPLs in the remainder of FY2021,” he writes.
“We now expect credit costs to come in below guidance of 30 basis points from around 55 basis points last year. Management seems confident that GPs of about $900 million already made can address any increase in non-performing loans as loan moratoriums expire,” he adds.
Shares in UOB closed 14 cents higher or 0.5% up at $26.63 on Aug 6, or 1.1 times P/BV with a dividend yield of 4.9%, according to PhillipCapital’s estimates.
Photo: Bloomberg
