UOB - RHB Invest 2022-05-04: Headwinds To Moderate FY22 Growth; Downgrade To NEUTRAL


UOB - Headwinds To Moderate FY22 Growth; Downgrade To NEUTRAL

  • UOB (SGX:U11)'s 1Q22 results missed expectations mainly on lower non-II. Although trading and investment (T&I) income is expected to rebound in 2Q22, we trimmed non-II due to the more challenging outlook. Our target price is lowered on account of higher risk premium and a tweak in the ESG score to 3.2 (from 3.3) as we recalibrate assessment of risks and regulatory requirements associated with data and cybersecurity.
  • Share price should consolidate in the near term, given its year-to-date outperformance and more subdued FY22F earnings growth.
  • Downgrade UOB to NEUTRAL from Buy, new S$32.70 target price from S$38.10, 9% upside, ~4% yield.

UOB's 1Q22 results missed expectations.

  • UOB's 1Q22 net profit of S$906m (-11% q-o-q, -10% y-o-y) was at 20% of our and consensus’ FY22F earnings. Reported ROE was a lower 8.8% vs FY21’s 10.2%, while CET-1 was relatively stable at 13.1%. PIOP fell 7% y-o-y as net fee income dropped 8% on lower wealth management and fund management, and T&I income plunged 83% (impacted by hedges and mark-to-market (MTM) losses on investments).
  • The sharper bottomline decline was mainly due to higher tax provisions following Malaysia’s imposition of prosperity tax for 2022. Provisions fell 11% on a S$2m write-back of general allowance (GP) vs a S$136m charge in 1Q21. Credit cost was 19bps vs 22bps in 4Q21 and 29bps in 1Q21.

UOB's FY22 guidance.

  • While domestic recovery in regional countries are still at a nascent stage, UOB's management is keeping a close watch on macroeconomic developments, given the geopolitical conflict and China’s pandemic-related lockdown. Loan growth guidance of mid-to-high single digit growth in 2022 remains intact, and would likely be driven by lending to the wholesale segment.
  • UOB now expects the US Federal Reserve to raise rates six times (from five times) in 2022, with every 25bps hike adding 4bps to NIM and S$150m-200m in NII. NIM is expected to rise to 1.60-1.62% in 2Q22 and reach 1.70% in 4Q22.
  • Non-II, which was earlier projected to grow by double digits, may be impacted by lower wealth management fees. Given that the MTM loss in 1Q22 is one-off, UOB's management guides for T&I income to recover to S$200m per quarter from 2Q22.

Asset quality stable.

  • Management believes headwinds from current macro developments would likely have some impact from China. That said, the exposure should be manageable, and the bank’s regular stress testing of portfolio has not revealed any significant weakness.
  • UOB’s NPL ratio was stable at 1.6% while NPA coverage is at a healthy 94%. Management is comfortable with its credit cost guidance of 20-25bps for FY22F. The bank is unlikely to write-back GP reserves in the near term.

Earnings and target price for UOB lowered.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2022-05-04
SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 32.70 DOWN 38.10