UOB - Maybank Kim Eng 2021-05-06: More Surprises?

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

UOB - More Surprises?


Asset quality, operations may positively surprise.

  • UOB (SGX:U11)’s 1Q21 PAT beat expectations. It is seeing a strong operating rebound – especially in Singapore and North Asia – and this is likely to strengthen as economic activity opens up, we believe.
  • Its ASEAN exposure – where COVID is resurging – poses some near term risks, but strong provisioning and capital levels provide cushioning and potential upside from reserve write-backs down the road.
  • UOB’s credible execution of its digital banking strategy and regional integration should support stronger medium term growth from increased customer acquisition and North-South supply chain shifts.
  • We raise our UOB target price to S$29.34 from S$26.24. Upgrade to BUY.



Strong operating rebound

  • UOB's fee income rebounded 24% y-o-y on the back of wealth (+19% y-o-y) and loan/trade fees (+27%). Lower rates, increasing economic activity and supportive markets should continue to drive momentum here, in our view.
  • Loans expanded 5% y-o-y led by Singapore and North Asia. As markets on a firmer recovery footing, these should continue to drive growth. As vaccines progress in ASEAN, we expect incremental loan demand to firm up.
  • UOB’s strong cross-border integration stands to be a key regional beneficiary from North-South supply chains shifts in the medium term, in our view. Indeed, cross border income contributed a third of wholesale income. We raise 2021-2023E PPOP by 3-4% to reflect these trends.


Improving asset quality

  • 1Q21 new NPL formation fell 60% potential to positively surprise on asset quality going forward. We lower UOB's 2021-23E credit charges by 2-5bps.


Raise UOB's target price to S$29.34. Upgrade to BUY






Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-05-06
SGX Stock Analyst Report BUY UPGRADE HOLD 29.34 UP 26.240



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