United Overseas Bank - Phillip Securities 2021-03-02: Sun Is Coming Out Again


United Overseas Bank - Sun Is Coming Out Again

  • UOB (SGX:U11)'s FY20 earnings of S$2.94bn met, at 2% of our estimate.
  • NIM recovered q-o-q to 1.57% to boost NII by 3%.
  • Fees and commissions grew q-o-q and y-o-y, though trading income was lower.
  • Commitment to 50% payouts implies FY21e dividend of S$1.20 on strong CET-1 of 14.7%.
  • Upgrade UOB to ACCUMULATE from NEUTRAL with higher GGM target price of S$28.70 from S$21.10.

The Positives

Resilient interest margins

  • NIM improved 4bps q-o-q from 1.53% to 1.57%, contributing to a 3% increase in NII. Better management of liquidity and funding costs lifted NIM. NIM is expected to be stable as the bank targets loan growth to improve NII. Room for further funding-costs adjustments and improving LDR can help manage NIM compression pressures.

Robust growth in fees and commissions

  • Fee and commission income grew 10% y-o-y and 2% q-o-q. Fund-management and wealth-management fees improved, particularly as UOB’s wealth-management franchise gained traction. Credit-card fees also grew by double digits for a second consecutive quarter to S$109mn, mirroring a recovery in consumer spending.

The Negatives

Weak trading income

  • Volatile market conditions caused its trading income to decline. This reduced its non-interest income by 33% y-o-y and 21% q-o-q. The q-o-q decline was also due to more investment gains booked during the previous quarter. As volatility subsides, we expect trading income to stabilise in FY21e.

Uptick in SPs

  • UOB recognised S$241mn of SPs in 4Q20. This was its highest quarterly in FY20 after an extensive review of its loan book to provide for at-risk loans. Full-year credit cost of 57bps represented S$1.58bn of loans, with S$900mn booked as GPs.
  • UOB's loans under government relief programmes fell from S$11bn at end-FY20 to S$3bn after Singapore exited the first phase of its moratorium. Total loans under various relief programmes shrank to S$18bn or 6% of loan book. Of this, UOB expects S$2bn of non-performing assets, which are highly collateralised. It has guided for lower credit costs of 30- 40bps on improved asset quality.


Trade flows within Asia

  • Economic recovery is expected to support trade flows between ASEAN and Greater China. UOB believes it is poised to benefit from business resumption in the region with its established presence in ASEAN. Coupled with its TMRW digital platform, UOB is eyeing high-single-digit loan growth in FY21e from the 4.4% increase in FY20. We believe an ASEAN exposure will be a better play on the economic recovery due to stronger underlying growth.


  • A final dividend of S$0.39 per share brings UOB's FY20 full-year dividend to S$0.78 for a 45% payout.
  • UOB expects to resume its previously-guided dividend policy of at least 50%. As such, we model in an FY21e dividend of S$1.20, supported by better profitability and a CET-1 ratio of 14.7%.

Investment Action

Upgrade UOB to ACCUMULATE with higher GGM target price S$28.70, from S$21.10.

Tay Wee Kuang Phillip Securities Research | https://www.stocksbnb.com/ 2021-03-02
SGX Stock Analyst Report ACCUMULATE UPGRADE NEUTRAL 28.70 UP 21.100