UOB - DBS Research 2022-05-04: Cautiously Optimistic

UOB - Cautiously Optimistic

  • UOB (SGX:U11)'s 1Q22 results came in below the consensus. 1Q22 net profit came in at S$906m, declining 10% y-o-y/11% q-o-q, below estimates, on lower non-customer trading and investment income and lower general allowances write-back.
  • Takeaways from analyst briefing by UOB:
    • Guidances intact. For every 25bps rate hike, UOB's management expects a 4bps increase in NIM or S$150m increase in NII, and that 4Q21 NIM will come in slightly below 1.7%. Impact to NII not fully felt in 1Q22, as rate hike was in March; complete impact of the S$1.0- 1.5bn increase is to NII to be felt in FY23.
    • UOB's management also continues to guide for mid to high single-digit loan growth, high single-digit fee growth, a stable cost-to-income ratio, and credit costs of 20- 25bps. Staff costs are expected to increase 10% y-o-y on higher profits (staff costs tied to profits) and competition for talent; technology costs are to continue increasing as well.
    • Thoughts on loan growth. The retail and mortgage side has been pretty stagnant the last few years, but UOB's management expects this segment to grow and sees green shoots emerging. On the wholesale side, the pipeline remains robust, but they are watchful given the Russia-Ukraine war and slower China growth.
    • Loan growth is coming mostly from Singapore while it remains quite flattish for the rest of the region, as their domestic recovery processes have just started. However, management is bullish for the longer term.
    • Modest exposure to China and commodities. Mainland China exposure stands at S$26.8bn or 6% of total assets, while Hong Kong SAR exposure stands at S$41.5bn or 9% of total assets. UOB's management assures that NPL in Mainland China is negligible and asset quality in China has been pretty good. Further, outstanding loans to commodities is only at 7% of total loans with O&G at 4% of total loans.
  • Maintain BUY rating on UOB with target price of S$37.00. Our target price of S$37.00 is based on the Gordon Growth Model (11.4% ROE, 3% growth, 9% cost of equity). This is equivalent to a ~1.4x FY22F P/BV that is ~1 standard deviation above its 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/ 2022-05-04
SGX Stock Analyst Report BUY MAINTAIN BUY 37.00 SAME 37.00

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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