UOB 1Q21 - OCBC Investment 2021-05-07: Decent Beat


UOB 1Q21 - Decent Beat

  • UOB's 1Q21 operating profit grew 6% y-o-y /16% q-o-q driven by broad based growth recovery.
  • Ready to resume 50% dividend payout once regulatory green light is given.
  • Upbeat guidance, with improved credit costs outlook and loans expected at high single-digit.
  • Lifting our fair value estimate for UOB further to S$29 implying 1.26x price/book, at the middle of its 10-year historical average range and reflecting a recovering growth outlook.

UOB's 1Q21 results a decent beat

  • Similar to peers, UOB (SGX:U11) has started the year on a positive note with 1Q net profit rising 46% q-o-q/+18% y-o-y to S$1bn, which accounted for 27% of consensus expectations for the full year.
  • 1Q operating profit of S$1.4bn grew 6% y-o-y/16% q-o-q driven by broad based pickup in growth momentum across its franchise and cost controls. Cost income ratio of 43.8% fell 2.9ppt q-o-q/-1.3%ppt y-o-y.

Stabilising NIMs

  • UOB's net interest income grew 1%, with stable NIMs of 1.57% as expected. Customer loans grew +4% q-o-q/+5% y-o-y, with demand from large corporate and institutional clients.
  • Fee income grew 22% q-o-q/24% y-o-y to S$638mn, contributing 26% of total income, driven by stronger wealth management, loan related and investment banking activities.
  • Trading and investment income grew 62% to S$246mn on the back of higher net gains in investment securities and trading income.

Asset quality remained benign

  • Asset quality remained benign with npl ratio of 1.5% improving marginally by -0.1pt q-o-q and y-o-y. Total credit costs on loans of 29bps was in line. Impairment charge was brought down by 49% q-o-q/29% y-o-y on the back of a stabilising credit outlook.
  • UOB's 2021 guidance: stable NIMs, high single digit loan (vs 2020’s 5%), credit costs should come below 30bps (vs 2020’s 57bps), dividend payout should be reinstated once regulators give the green light.

Constructive 2021 guidance maintained, ready to lift dividends once regulators remove the dividend cap

  • Credit costs guidance has been improved and guided to be below 30bps this year (from previous range of 30-40bps & FY20’s 57bps). UOB's management expects an improved outlook this year, reiterating guidance for high single digit loan growth target (driven by its wealth management franchise, improving Asean/Greater China connectivity flows and digital strategy expansion across Asean), double digit growth in non interest income, stable NIMs and cost income ratio.

Lifting our fair value further to S$29

  • Lifting our fair value estimate of UOB further to S$29 implying 1.26x price/book, at the middle of its 10-year historical average range and reflecting a recovery outlook.
  • We continue to see scope for UOB's share price to gain ground this year, with potential catalysts from improving fee income momentum, loans growth recovery, stabilizing NIMs and easing concerns on asset quality trends in its ASEAN loan book.
  • See
  • Overall, we remain constructive on the financials sector and expect the recovery theme to gather strength over the course of the year, supported by progress in vaccines rollout, dividends normalization and a steepening yield curve.
  • BUY.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-05-07
SGX Stock Analyst Report BUY MAINTAIN BUY 29.00 UP 27.300