UNITED OVERSEAS BANK LTD (SGX:U11)
United Overseas Bank - Harnessing Strength Of Extensive Network Within ASEAN
- Having the most extensive network within ASEAN, UOB (SGX:U11) is well positioned to capture cross-border investment and trade flows as businesses diversify their supply chain to Southeast Asia. UOB has tripled its investments in IT since 2014. It was recognised as the Best Digital Bank in Singapore and Thailand by Asiamoney in 2019.
- UOB is committed to maintaining dividend payout ratio at 50% if CET-1 CAR stays above 13% and it achieves RORWA of 1.60-1.65%.
Guidance for 2020F.
- Management expects loan growth to moderate from high-single-digit to mid-single-digit for 2020. In particular, loan growth for Singapore will be reduced from 8% to 5%.
- Management also guided on NIM compression of 5-10bp (assumes 3-month SIBOR to fall by 30-50bp to 1.4-1.5% by end-20), mid-single-digit growth for fee income and credit costs of 20-25bp for 2020.
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Benefitting from cross-border flows.
- UOB is well positioned to capture cross-border investment and trade flows as businesses diversify their supply chain to Southeast Asia due to its extensive regional network. It continues to strengthen its regional network with newly-opened branches in Hanoi, Vietnam and Zhongshan, China. Cross-border revenue grew 19% y-o-y in 5M19 and accounted for 27% of Group Wholesale Banking (GWB) income.
Helping clients preserve wealth for next generation.
- Wealth management fees grew 38% y-o-y while AUM expanded 10% y-o-y to S$122b in 3Q19. UOB continues to register double-digit growth in discretionary portfolio management (DPM) AUM for private banking clients in recent years. UOB had set up a booking centre in Hong Kong in 2H18.
Engaging customers through TMRW.
- In Mar 19, UOB launched mobile-only digital bank TMRW, targeting millennials in Thailand. The focus is to engage customers through regular transactions. 40% of TMRW’s customers transact four times per month. TMRW provides deposit accounts and credit cards. UOB plans to introduce unsecured personal loans (small-ticket) and wealth management products as well.
Putting customers at the centre of digital transformation.
- UOB was recognised as the Best Digital Bank in Singapore and Thailand by Asiamoney in 2019. UOB Mighty App was enhanced with Mighty Insights, which uses predictive artificial intelligence to help customers manage their money and make better financial decisions. UOB plans to launch digital bank TMRW in five ASEAN countries.
- UOB targets 3m-5m customers for TMRW in five markets over the next five years.
Potential upside from higher DPS.
- UOB is committed to maintaining a dividend payout ratio at 50% if CET-1 CAR stays above 13% and it achieves a return on risk-weighted assets (RORWA) of 1.60-1.65%. DPS for 2018 was S$1.20.
- Assuming UOB achieves consensus estimate EPS of S$2.55, best case DPS for 2020F would be S$1.28.
- For UOB, S$21.80 to S$23.30 would provide an attractive dividend yield of 5.5%.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2020-01-03
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