UOB - DBS Research 2022-02-17: Re-rating Cycle Ahead

UOB - Re-rating Cycle Ahead

  • Takeaways from analyst briefing by UOB (SGX:U11) :
    • Business momentum is expected to continue as economies recover, and management observes improving consumer sentiment in Singapore and the region. For FY22F, management is guiding for
      1. mid to high single-digit loan growth;
      2. double-digit growth in non-interest income;
      3. stable cost-to-income ratio excluding integration costs related to the acquisition of Citigroup’s consumer business in Indonesia, Malaysia, Thailand, and Vietnam; and
      4. credit costs to normalise back to 20-25bps given a resilient portfolio.
    • For every 25bps rate hike, UOB's management expects a 4bps increase in NIM or a S$150- 200m increase in profit.
    • Mid-to-high single-digit loan growth backed by a strong pipeline in corporate and institutional loans and mortgages. Growth has been driven by large corporate and institutional clients predominantly in mature markets.
    • Green shoots of recovery are emerging for ASEAN, albeit still slightly muted given that COVID-19 recovery is slower. Management thinks that retail loan growth is not likely to grow as rapidly as wholesale, but the Citibank acquisition will be able to boost retail loan growth.
    • UOB's management is aiming for double-digit growth for fee income in both wholesale and retail businesses, which will be further boosted by the Citibank acquisition. Malaysia and Thailand’s growth will be driven by wealth management activities while Indonesia and Vietnam have immense potential given the size of their populations.
    • UOB's dividend payout ratio is maintained at 50% to balance between organic growth opportunities and paying back to shareholders. Management also guided that they are comfortable with a lower CET1 ratio of 12.5-13.5% (prev > 13.5%), reflecting increased confidence in the market outlook.
  • We believe there is further room for UOB's Share Price to re-rate, as we continue to see strong business momentum and improved profitability in a rate hike environment. Our house view currently stands at five hikes in 2022 and two more in 2023, which will be positive for UOB’s NIM through FY23F and beyond.
  • Maintain BUY rating on UOB with a higher target price of S$37.00. Our target price of S$37.00 is based on the Gordon Growth Model (11.4% ROE (prev: 11.0%), 3% growth, 9% cost of equity). This is equivalent to a ~1.4x FY22F P/BV that is ~1 standard deviation above UOB's average 12-year forward P/BV multiple.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.

Paul YONG DBS Group Research | Rui Wen LIM DBS Research | Singapore Research DBS Research | https://www.dbs.com/insightsdirect/ 2022-02-17
SGX Stock Analyst Report BUY MAINTAIN BUY 37.00 UP 34.200

Read also DBS Research's most recent report:
2022-10-28 UOB - A Stellar NIM Showing, 3Q22 Results Strongly Ahead Of Consensus

Target prices by 3 other brokers at UOB Target Prices.
Listing of broker reports at UOB Analyst Report.

Relevant links:
UOB Share Price History,
UOB Announcements,
UOB Dividends & Corp Actions,
UOB News Articles


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