UOB 1Q21 Preview - CGS-CIMB Research 2021-04-19: Aiming To Close The Valuation Gap


UOB 1Q21 Preview - Aiming To Close The Valuation Gap

  • We see flat 1Q21F NIM, stronger wealth management, and treasury income for UOB
  • Stronger loan growth momentum (+3.5% q-o-q) coupled with lower credit costs (30bp) were likely the key differentiating factors for UOB vs peers in 1Q21F.
  • Reiterate ADD. UOB is our top pick. A strong show of earnings could close the valuation gap between UOB (1.0x FY21F P/BV) and peers (1.1x-1.4x).

UOB is on track towards high-single-digit loan growth in FY21F

  • We expect UOB (SGX:U11) to post ~S$995m net profit for 1Q21F (+45% q-o-q, +16% y-o-y). Its loan growth is on track to meet its full-year guidance of a high single-digit growth. Delivery of its pipeline of deals built over the past quarters is materialising, with the bulk of the year’s drawdowns likely to come in in 1H21F.
  • We expect 3.5% q-o-q loan growth for UOB in 1Q21F (4Q20: -1.2% q-o-q), supported by commercial real estate term loans.

NIM could start stabilising as funding cost savings taper

  • On balance, we estimate UOB's NIM was flattish q-o-q at 1.57% in 1Q21F (4Q20: 1.57%). While volumes from the longer-tenured term financing allows for some pick-up in asset yields, pricing competition for high-quality top tier corporate clients remains stiff.
  • Nonetheless, we understand that fixed deposits continue to run off, providing residual savings on funding costs. We think that LDR ratio should rise from ~85% as at end-4Q20 going forward as credit demand picks up amid a gradual recovery in business activity.

UOB could show stronger 1Q21F non-II performance than peers

  • We expect a pick-up in UOB's 1Q21F fee income (+7% q-o-q, +8% y-o-y) on the back of strong wealth management income (+14% q-o-q, +8% y-o-y) – supported by steady customer trading activity and loan-related fees (+30% q-o-q, +8% y-o-y) – stemming from advisory services to corporate clients.
  • As treasury income likely benefited from the robust market sentiment, we estimate that non-II rose 21% q-o-q (+9% y-o-y).

Base case of ~30bp credit costs in 1Q21F intact

  • UOB had earlier reiterated its base case of ~30bp credit costs in FY21F (FY20: 56bp), equally spread over the year, incorporating delayed NPL formation of ~S$2bn given the loan moratoriums. This will materialise in heftier quarterly specific provisions when the NPLs arise, or otherwise topped up with pre-emptive general provisions (GP). We understand its asset quality deterioration (or NPL accretion) was not material in 1Q21F.

Valuations are more attractive than peers at 1.0x FY21F P/BV

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-19
SGX Stock Analyst Report ADD MAINTAIN ADD 27.720 SAME 27.720