United Overseas Bank - UOB Kay Hian 2021-08-05: 2Q21 More Dividends, Less Credit Costs

UNITED OVERSEAS BANK LTD (SGX:U11)

United Overseas Bank - 2Q21 More Dividends, Less Credit Costs

UOB's 2Q21 net profit of S$1,003m was 8% above consensus estimate of S$928m. UOB benefitted from robust loan growth of 6.4% y-o-y and an 8bp y-o-y recovery in NIM. Credit costs eased by 9bp q-o-q to 20bp as general provisions were adequate and no further build-up was required. Management has lowered its guidance for credit costs from below 30bp to below 25bp for 2021 due to its resilient portfolio.

UOB has declared interim dividend of S$0.60 for 1H21 (1H20: S$0.39), which represents dividend payout ratio of exactly 50%.

UOB (SGX:U11) reported net profit of S$1,003m for 2Q21, above consensus estimate of S$928m.

Loan growth was strong at 6.4% y-o-y and 2.0% q-o-q in 2Q21 led by a broad-based increase in corporate loans. The strong sequential expansion was driven by Singapore (+2% q-o-q), Malaysia (+4% q-o-q), Greater China (+6% q-o-q) and Western countries (+11% q-o-q). By industry, loan growth was driven by building & construction, manufacturing, and financial institutions. NIM improved 8bp y-o-y but eased by 1bp q-o-q to 1.56%. Net interest income rebounded strongly by 8.4% y-o-y.

Wealth management fees grew 24% y-o-y (2Q20 was a low base due to the Circuit Breaker), but moderated 16% q-o-q due to Phase 2 (Heightened Alert) during the latter part of the quarter. AUM grew 7% y-o-y to S$137b. Loans & trade-related fees were sequentially flat at S$258m. Overall, fees & commissions expanded 34% y-o-y in 2Q21.
Other non-interest income declined 32% to S$243m, mainly from a drop in trading income.

Cost/income ratio was maintained at 43.7% in 2Q21. Operating expenses declined by 3% y-o-y. UOB stated that it continues to make strategic investments in people and technology, while maintaining discipline on reducing discretionary expenses.

NPL formation was S$363m in 2Q21 due to a few corporate accounts but NPL ratio was unchanged at 1.5%. There was a slight increase in NPLs for Malaysia, Thailand and Indonesia, which was offset by a slight drop in NPLs in Singapore. Write-off of S$202m was related to legacy exposures to the oil & gas sector while credit costs eased to 20bp (mainly specific provisions), compared with 29bp in 1Q21. No further build-up of general provisions was required.

UOB declared an interim dividend of S$0.60 for 1H21 (1H20: S$0.39), which represents a dividend payout ratio of exactly 50%. CET-1 CAR was stable at 14.2%.

Lowered guidance for credit in wealth management. UOB will utilise its digital capabilities to extend reach and deepen customer engagement. It has launched Simpleinvest and Simpleinsure to provide simple and intuitive wealth management services digitally. 60% of new Simpleinvest users are first-time investors and 40% are below 40 years old. UOB plans to convert these new customers into omni-channel customers, which will lead to purchase of bigger ticket financial products. Its physical branches are being repositioned for wealth conversations.
See

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-08-05

SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000