United Overseas Bank Limited – Steady quarter May 10, 2021 350

PSR Recommendation: ACCUMULATE Status: Maintained
Target Price: 28.70
  • 1Q21 earnings of S$1.0bn in-line, at 25.5% of our FY21e forecast boosted by stronger than expected other non-interest income but dragged by higher than expected allowances.
  • NIM unchanged QoQ at 1.57%, helped by lower cost of deposits at 1Q21. Guidance for FY21e remain unchanged.
  • 1Q21 credit cost declined 26bps on QoQ basis to 29bps. FY21e guidance is 30bps, down from 30-40bps previously.
  • The bank is reviewing Citi’s for-sale assets in Asia Pacific. Information memorandum on sale expected later this month.
  • Maintain ACCUMULATE and GGM TP (1.17x of FY21e P/BV) of S$28.70.



The Positives

+ NII increased 1% QoQ, NIM stable. NII increased 1% QoQ led by loan growth of 4%, led by term and trade loans in Singapore and North Asia. NIM was unchanged at 1.57% this quarter, helped by lower cost of deposits. NIM is expected to remain stable in FY21e as the bank targets loan growth to improve NII. Wholesale banking business grew 9% YoY, to a quarterly record backed by improving sentiment. Credit demand was strong from large corporate and institutional clients.

+ Robust growth in fees and commissions. Fee and commission income grew 24% YoY and 22% QoQ. This came from record wealth-management AUM and a pick-up in equity markets. Loan-related fees were also supported by large investment-banking and loan-related deals in Singapore, Hong Kong and U.S.

The Negatives

– No write-backs despite stabilising outlook. The bank recognised S$71mn of SPs in 1Q21 with GP unchanged at 1% of loans. Total allowance for this quarter is S$201mn. Despite the sizeable provisions it made in 2020, the bank has delayed the write-back of these allowances in favour of a stronger balance sheet.

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About the author

Profile photo of Terence Chua

Terence Chua
Senior Research Analyst
Phillip Securities Research

Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy- and sell-side. As an institutional fund management analyst, he sat on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018.

He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.

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