Analysts from DBS Group Research, PhillipCapital and RHB Group Research are positive on UOB’s prospects after the bank released its earnings results for the 3QFY2021 ended September.
On Nov 3, UOB reported net profit after tax (NPAT) – or net earnings – of $1.05 billion, 57% higher y-o-y, which stood slightly ahead of consensus’ estimates.
On this, DBS Group Research analyst Lim Rui Wen and the Singapore research team have kept “buy” on UOB with a higher target price of $31 from $29.20 previously.
The higher target price is equivalent to 1.2 times FY2022 price-to-book value (P/BV) that is “at its average 12-year forward P/BV multiple,” writes Lim in a Nov 5 report.
Lim has also revised her earnings assumption by 3% to 5% through FY2021 to FY2023 as she estimates lower credit costs moving forward.
To this end, Lim believes there is further room for UOB’s share price to grow in light of the expected economic recovery, which will also lead to a higher interest rate environment.
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“UOB is looking towards some net interest margin (NIM) improvement into FY2022 as it gears up on regional loans, which typically have higher NIMs, amidst continued momentum in loans, wealth management, and other fee income. Release of its management overlay buffers in general provisions may further provide ROE upside in FY2022,” she says.
UOB’s strong non-performing asset (NPA) coverage of 106% and large management overlay of over $1 billion in general provisions will “mitigate any potential unexpected specific provisions,” she adds.
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To Lim, a potential catalyst for UOB is sustained positive deliveries.
“Lower-than-expected credit costs could drive UOB’s earnings while post-Covid recovery in ROE could boost its share price,” she says.
That said, “larger-than-expected non-performing loans (NPLs), as well as a worse-than-expected Covid-19 pandemic situation globally, could unwind expectations of credit cost and NPL declines, thus posing risks to earnings”.
PhillipCapital analyst Glenn Thum has kept “accumulate” on UOB with an unchanged target price of $29.
Thum’s target price remains based on a valuation of 1.17 times FY2021 P/BV.
He has also kept his forecast for the FY2021 unchanged.
To him, UOB’s recovery path is “on track”.
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Furthermore, he has estimated that the bank’s profit should recover in FY2022 on the back of stabilising margins, stronger fees and lower provisions.
“We expect wealth management, loan-related and card fees to expand 22% y-o-y. We continue to expect credit costs to come in below guidance of 25 basis points (bps). There is earnings upside from writebacks of the $1 billion in management overlay of general provisions,” Thum writes in a Nov 5 report.
“A condition to writeback will be the outlook of the pandemic. General provisions are expected to trend at 80 to 90 bps of gross loans. This implies around $450 million of writebacks,” he adds.
The Singapore research team at RHB Group Research has also kept “buy” on UOBwith a higher target price of $33.50 from $30.20
The new target price includes RHB’s ESG score of 3.40 for UOB. Accordingly, the team has applied an 8% premium to its value to arrive at the new target price.
With UOB’s results for the 9MFY2021 within expectations, the team has kept its earnings estimates for the FY2021 to FY2023 unchanged.
According to their estimates in a Nov 5 report, the team sees a better FY2022 across all lines for the bank.
“Loan demand is expected to stay strong with the pick-up in cross-border activities. UOB sees higher loan growth from regional operations with some moderation in Singapore – it is comfortable with mid to high single-digit growth in FY2022,” writes the team.
“Management expects NIM to be stable to slightly higher, as rate hikes will be in later 2022, while margins from regional states will be flattish on their slower economic recovery. The fees outlook, namely wholesale banking and wealth management, remains positive, although growth will moderate from FY2021,” it adds.
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In addition, asset quality is expected to stabilise in 2022, although the NPL ratio could increase to 1.7% to 1.8% as some NPLs materialise.
“Still, credit cost is expected to be slightly lower (23bps vs FY2021F 25bps), as general provisions (GP) have already been set aside for these anticipated NPLs,” adds the team.
As at 2.08pm, shares in UOB are trading 29 cents lower or 1.04% down at $27.61, or an FY2021 P/B of 1.06 times and dividend yield of 4.4%, according to RHB’s estimates.
