UOB 1Q20 - Maybank Kim Eng 2020-05-06: Balancing Act

UNITED OVERSEAS BANK LTD (SGX:U11) | SGinvestors.io UNITED OVERSEAS BANK LTD (SGX:U11)

UOB 1Q20 - Balancing Act


Managing franchise, asset quality & returns

  • UOB (SGX:U11)’s 1Q20 PAT came in-line with Street expectations and marginally behind MKE. PPOP was flat despite a tougher operating environment supported by UOB’s diversified geographical presence. While we expect operating pressures to intensify going forward, its regional integration and strong USD liquidity should provide market share opportunities.
  • We have raised credit charges and expect them to remain elevated till 2022E. Despite this, we estimate overall CET1 levels should sustain above minimum management comfort levels to preserve 50% dividend payout.
  • Maintain BUY with lower Target Price of SGD22.42.





Executing in a weak environment

  • Loans increased 3% y-o-y supported by SE & North Asian operations. The mix of China opening up from Covid-19 lockdowns and aggressive government measures to keep liquidity flowing may provide upside support for loan growth going forward.
  • Similarly, increasing low-cost deposits and USD liquidity (62% 2019 LD ratio) should support market share opportunities regionally as well as better pricing power.
  • We have lowered 2020-2021E opex by 6-8% to account for government wage support schemes, lower bonuses as well as cuts to travel, marketing as well as suspended tech projects. This should keep CIR flat y-o-y, we estimate.


Credit charge risks remain on the upside

  • Management is guiding credit charges to reach 50-60bps yearly in 2020- 2021E.
  • We have raised our own estimates to the upper end of guidance and expected elevated levels in 2022E given earlier cycles took 3-years to normalise. 15% of loans are SMEs with a majority in SG and MY where strong government support schemes exists, while Covid-19 frontline sectors account for 12% - exposure here is predominantly large corporates, according to Management.
  • UOB’s conservative classification track record should drive gross NPLs reaching 2.5% in 2022E vs. 1.6% now.


Maintain BUY. New Target Price SGD22.42






Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-05-06
SGX Stock Analyst Report BUY MAINTAIN BUY 22.42 DOWN 22.550



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