SINGAPORE (July 12): Credit Suisse is keeping UOB at “outperform” given its scope for NIM expansion and higher dividend.
In 1Q17, UOB saw Net Interest Margin expand by 4bps q-o-q by extending the duration of its interbank and securities book.
“We believe that there is further scope for UOB to enhance margins by extending the duration and diversifying into other asset classes, and this could partially offset the recent weakness in local interest rates,” says lead analyst Danny Goh in a Wednesday report.
As a result, Credit Suisse is increasing its FY17E NIM by 1bp to 1.73% from 1.72%. It is also tweaking its non-interest income and operating expense assumptions which will impact its FY17/18 profits positively at 2.5-4.7%.
Goh also insists there is the possibility of UOB raising dividend, given its CET 1 ratio of 12.8%, which he expects to further increase through RWA (Risk-weighted asset) optimisation efforts.
Based on Credit Suisse’s estimate, UOB could have some $1.5 billion or $1 per share of excess capital that could be distributed as dividends.
“For FY17, we expect UOB to raise dividends from 70 cents to 75 cents, translating to a payout ratio of 34.4% vs 37% in FY16,” says Goh.
“We revise our target price up to $25.6 from $24.3... UOB has the lowest score on the Street Sentiment Index which is a reflection of the number of Buys, Holds and Sells among sell-side analysts,” says Goh.
At 11.13am, shares in UOB are up 1 cent at $23.26.
