SINGAPORE (May 3): Analysts are staying positive on United Overseas Bank (UOB), after the bank posted record-high 1Q18 earnings of $978 million – some 21% higher than a year ago.
See: UOB reports 21% rise in 1Q earnings to record $978 mil as net interest income hits new high
“Growth was largely driven by the substantial reduction in credit costs and expenses. Revenue grew high single-digit on the year and was flat sequentially driven by growth in loans, margins and fee income,” says Krishna Guha, an analyst at investment bank Jefferies Singapore.
Jefferies is keeping its “buy” call on UOB and raising its target price to $34.00, from $33.00 previously.
Guha notes that UOB’s net interest income was up 13% in 1Q18, on the back of loan growth and net interest margin (NIM) expansion. And he expects NIM to trend upward for the rest of the year.
As such, he is raising UOB’s margin forecast to 185 basis points, from 181 basis points previously.
“While we remain watchful of valuations and tightening financial conditions, we maintain ‘buy’ on business momentum,” Guha says.
Meanwhile, RHB Research is raising its 2018 net profit forecast for UOB by 3%.
“We remain positive on UOB, given prospects of wider NIM ahead,” says analyst Leng Seng Choon. “We raised our ROE assumption from 11.5% (to 13%) given the more optimistic outlook on NIM, and likelihood of higher dividends.”
RHB is keeping its “buy” call on UOB and lifting its target price to $33.30, from $30.00 previously.
In addition, Leng notes that UOB’s management has guided that common equity tier 1 (CET1) capital adequacy ratio (CAR) – which rose to 14.9% in 1Q18 – could fall below 14% by end-2019.
“We believe UOB’s target to lower CET1 CAR could translate to higher dividends and catalyse its share price higher,” Leng says.
As at 4.53pm, shares in UOB are trading 42 cents lower, or down 1.4%, at $29.57. According to RHB valuations, this implies an estimated price-to-earnings ratio of 12.4 times and a dividend yield of 3.7% for FY18.
