UOB - OCBC Investment 2018-06-13: Right ‘BUY’ You

UOB - OCBC Investment 2018-06-13: Right ‘buy’ You UNITED OVERSEAS BANK LTD SGX:U11

UOB - Right ‘BUY’ You

  • Value is emerging.
  • Good level to accumulate.
  • Fair Value of S$31.02.

“BUY at S$29.00 or lower” is now!

  • In our last report dated 3 May 2018 (see: UOB - Make It Rain Dividends), when we downgraded the stock to a HOLD, we recommended investors to buy at S$29.00 or lower. Since then, the stock has dropped below S$28.00 recently, down about 7% in the past one month from the recent high of S$30.14.
  • At current UOB share price, value is emerging. Based on an estimated dividend payout of S$1.00, current yield is at about 3.6% - and we deem this to be a good level.
  • Fundamentally, there is no change in our projections for the group and we are retaining our FY18 net earnings estimate of S$4007m – the highest level in its operating history.

Recent quarter showed broad-based improvement

  • For 1Q18, UOB delivered net earnings of S$978m, up 21% y-o-y and 14% q-o-q. Better Net Interest Margin (NIM) together with healthy loans growth of 5% led to a new high of S$1.47b in Net Interest Income, which is a 13% improvement y-o-y. 
  • NIM rose from 1.73% in 1Q17 and 1.81% in 4Q17 to 1.84% in 1Q18.
  • Net fee and commission income increased 18% y-o-y to S$517m, supported by growth in wealth management (+30% y-o-y), fund management (+27% y-o-y) and loan-related fee income (+24% y-o-y).
  • Cost-to-income ratio stood at 44.2% this quarter. NPL was at 1.7%, down from 1.8% in the previous quarter. Allowances fell sharply from S$140m last quarter to S$80m this quarter.

Outlook is fairly positive; possibility of higher dividend?

  • With the improving market outlook, we are generally more optimistic about the operating environment for the Singapore banks. We expect improving NIM to be a key feature this year.
  • While management has earlier indicated the possibility of a special dividend this year, based on what was given out last year, which amounted to a total of S$1.00 (dividend of 80 cents plus special dividend of 20 cents), current dividend yield of 3.6% will complement the potential price upside to our fair value estimate of S$31.02.

Carmen Lee OCBC Investment | https://www.iocbc.com/ 2018-06-13
SGX Stock Analyst Report BUY Maintain BUY 31.020 Same 31.020