United Overseas Bank - UOB Kay Hian 2021-05-07: 1Q21 Broad-based Growth & Record Fees


United Overseas Bank - 1Q21 Broad-based Growth & Record Fees

  • UOB's 1Q21 net profit of S$1,008m was 9% above consensus estimate of S$926m. UOB benefitted from stable NIM, double-digit growth in wealth management fees, higher trading and investment income, and easing of credit costs.
  • UOB will look at banking assets that Citibank has put up for sale in ASEAN countries, such as Malaysia, Thailand, Indonesia and Vietnam.
  • UOB's management intends to resume dividend payout ratio of 50% subject to approval from MAS.


  • UOB (SGX:U11) reported net profit of S$1,008m for 1Q21, up 18% y-o-y and 46% q-o-q. The results were significantly above consensus’ estimate of S$926m.
  • Strong loan growth on sequential basis powered by Greater China. Loans expanded 5% y-o-y and 4% q-o-q in 1Q21, driven by term and trade loans from Singapore (7% y-o-y and 5% q-o-q) and Greater China (5% y-o-y and 7% q-o-q). NIM was stable at 1.57% with active management on cost of deposits. Net interest income grew 1% y-o-y.
  • Double-digit growth in fee income. Fees & commissions expanded 24% y-o-y and 22% q-o-q to a new high of S$638m in 1Q21, driven by wealth management (19% y-o-y and 27% q-o-q) and loans / trade related activities (27% y-o-y and 41% q-o-q). Wealth management benefitted from the pick-up in equity markets. Assets under management (AUM) expanded 10% y-o-y to S$136b, of which 60% are from overseas customers. Loans-related fees were supported by large investment banking and loans-related deals across Singapore, Hong Kong and the US.
  • Trading & other non-interest income grew 7% y-o-y and 49% q-o-q due to customer flows, trading income and higher gains from investment securities.
  • Discipline to improve cost efficiency. Cost/income ratio improved 1.3ppt y-o-y to 43.8% in 1Q21. UOB achieved positive JAWS with operating expenses increasing by only 0.3% y-o-y, compared to the 3.3% y-o-y growth in total income. UOB continues to make strategic investments in people and technology, while remaining disciplined in reducing discretionary expenses.
  • Asset quality has stabilised. NPL ratio improved 0.1ppt q-o-q to 1.5% in 1Q21. New NPLs were S$145m, down by 59% compared with the quarterly average in 2020. Credit costs have eased 26bp q-o-q to 29bp (almost halved), primarily driven by the drop in specific provisions from 34bp to 10bp due to lower NPL formation and recoveries. Much of pre-emptive provisions were taken last year and the credit outlook is stabilising.


On track for sustainable growth in 2021.

  • UOB's management has guided high single-digit loan growth and double-digit growth in non-interest income for 2021. Cost/income ratio is expected to remain stable. Management expects credit costs to fall below 30bp due to its resilient portfolio (previous guidance: about 30bp).

Riding the recovery phase with customers.

  • Sentiment and business activities have picked up and trade flows between China and ASEAN countries have resumed, especially for commodities. Management sees robust credit demand from large corporate and institutional customers across key markets.
  • There is strong momentum in investment banking advisory, where UOB is active in privatisation deals. Treasury flows have improved after the implementation of Murex Treasury System. Cross border income has grown by 7% y-o-y and contributed 29% of Group Wholesale Banking’s income.

Willing and able to dish out more dividends in 2021.

  • Management expect CET-1 CAR to hover around 14% by end-21. UOB intends to maintain dividend payout ratio at 50% as it has sustainable earnings momentum, strong balance sheet and adequate provisioning. However, the plan is subject to approval from MAS.

Digital bank TMRW.

  • TMWR’s customer base has grown to 314,000 across Thailand and Indonesia, accounting for 18% of retail customer base in both countries (Thailand: 20%, Indonesia: 15%). TMRW added 50,000 customers in 1Q21, tracking the average pace of expansion of 200,000 customers per year. 70% of customers are new to UOB. It targets deposits of S$500 and above per customer. Deposits from TMRW customers have grown by 24% q-o-q in 1Q21. TMRW refers customers to parent UOB for residential mortgages, insurance and wealth management.

Potential from inorganic growth through acquisitions.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-07
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000