United Overseas Bank - UOB Kay Hian 2021-10-13: ASEAN Recovery In 2022, NIM Expansion In 2023


United Overseas Bank - ASEAN Recovery In 2022, NIM Expansion In 2023

  • Loan growth should pick up in 2H21, driven by corporate customers locking in current low interest rates, drawdown for residential mortgages and acquisition of commercial real estate, hospitality properties and new economy assets in developed markets.
  • Loans-related fees are on track to hit a new record for the full year in 2021. The Fed is expected to commence interest rate hikes in 4Q22, which will have a positive impact on UOB (SGX:U11)’s NIM in 2023.

UOB presented at our Asian Gems Virtual Conference 2021.

NIM expansion anticipated in 2023.

  • Yield for 10-year Singapore government bonds has surged 33bp in September and October to 1.74% currently. However, the short-end of the yield curve was relatively unaffected, while the 3-month Singapore Overnight Rate Average (SORA) remains depressed at 0.13%. Potential NIM expansion is contingent on the Fed’s rate hike cycle which is expected to commence in 4Q22 and flow through to positive impact on NIM in 2023.

Loan growth to pick up in 2H21.

  • Loans expanded 6.1% year-to-date in 1H21. UOB's management guided for high single-digit loan for 2021, driven by:
    1. Large corporate customers seeking to lock in current low interest rates.
    2. Sentiment in the residential property market is buoyant. Supply in the primary market is affected by delays in construction. Thus, young couples and newlyweds are increasingly turning to the resale market, which leads to immediate drawdown of their new housing loans.
    3. UOB supports large corporations and institutional clients in developed markets in North Asia and Rest of the World (Australia, UK and the US), especially for the acquisition of commercial real estate, hospitality properties and new economy assets, including logistics warehouses and data centres. UOB has financed Blackrock’s acquisition across the region and ESR Cayman/GIC acquisition of Milestone Logistics from Blackstone Group for A$3.8b. It is also the lead advisor to ESR Cayman for the acquisition of ARA Asset Management. Loans-related fees were S$506m in 1H21 and are on track to hit a record for the full year in 2021.

Continuously enhance UOB TMRW.

  • UOB will combine digital bank TMRW and mobile app UOB Mighty into one plans to launch UOB in another ASEAN market in the next 18 months.

ROE should rise in tandem with higher interest rates.

  • UOB targets to achieve a ROE of funds by securing more operating accounts through digital and payment services.

Maintaining a lean cost structure.

  • UOB has instituted a salary freeze after a review of compensation. New hires are scrutinised carefully and require approval by senior management. Thus, cost-to-income ratio was maintained at 43.8% despite having to weather the COVID-19 pandemic in 1H21. Cost-to-income ratio is expected to improve to 43-44% in 2022 due to expected recovery in ASEAN countries.

ASEAN countries to reopen and recover in 2022.

  • ASEAN countries were at a standstill in 2020 and 1H21 due management expects credit cost in 2H21 to be lower than the 24bp seen in 1H21.

UOB intends to maintain dividend payout ratio at 50%.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-10-13
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000