For the FY2022 ended Dec 31, 2022, UOB reported <a href="https://www.theedgesingapore.com/capital/results/uob-reports-record-high-fy2022-earnings-457-bil-final-dividend-75-cents-share" target="_blank">earnings of $4.57 billion, 24% higher y-o-y</a>. The higher earnings were attributable to the higher net interest income (NII), which came on the back of an expansion in its net interest margin (NIM) during the year.

Analysts from DBS Group Research, CGS-CIMB Research and RHB Group Research are the most positive on UOB’s results as they see the bank’s acquisition of Citi’s retail assets as a plus.

DBS sees UOB’s top-line growth to continue

DBS analyst Lim Rui Wen has kept “buy” on UOB with an unchanged target price of $34.20 as she sees UOB’s “robust” top line growth to continue.

Lim’s estimates come on the back of UOB’s guidance where the bank is expecting to see a double-digit growth in fees going into the FY2023 on top of a sequential net interest margin (NIM) expansion, albeit at a slower pace as deposit costs start to catch up.

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The analyst expects UOB to report a return on equity (ROE) of around 14% for the FY2023 on top of the $1 billion in  incremental revenue brought in by Citi’s consumer businesses.

“UOB’s dividend yield of [over] 5%, on a forward basis, continues to be attractive,” says Lim.

Furthermore, the bank’s acquisition of Citi’s consumer businesses in Indonesia, Malaysia, Thailand and Vietnam will allow it to “accelerate, scale up and deepen its Asean franchise,” notes the analyst.

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“Execution remains key to longer-term synergies, with management expressing confidence of higher structural ROEs of [over] 13% post-acquisition by FY2026,” she adds.

In her view, sustained positive deliveries will serve as a potential catalyst to the bank’s earnings.

“Lower-than-expected credit costs could drive UOB’s earnings while sustained deliveries in ROE could boost its share price. UOB’s strong non-performing asset (NPA) coverage of 98% is likely to limit the downside risks and provide share price support,” she writes.

UOB seeing ‘good traction’ in takeover of Citi’s retail assets, says RHB

The Singapore research team at RHB have also kept its “buy” call on UOB with an unchanged target price of $34.90.

To the team, UOB’s FY2022 results stood within expectations thanks to the bank’s NIM expansion and resilient asset quality.

However, while the bank’s NIM is expected to expand further in the 1HFY2023, the team expects NIM to wane going into the 2HFY2023.

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In its report, the team is “increasingly confident” over UOB’s acquisition of Citi’s retail assets, noting that the bank is seeing “good traction” in its takeover. This is after the bank’s management said that the acquisition would strengthen the bank’s retail value proposition in Asean and that it would likely exceed its original target for FY2026 for ROE of over 13% and maintain a 50% dividend payout.

“For FY2023, management expects $300 million - $400 million in one-off integration expenses but this would be cushioned by an immediate $1.0 billion in incremental income which would see cost-to-income ratio (CIR) at 43%-44% before easing to 40%-42% in FY2024,” the team writes.

Other highlights from UOB’s briefing includes management’s guidance that the bank’s credit cost for FY2023 will stay within its usual run rate of 20 basis points (bps) to 25bps.

“Non-performing loan (NPL) ratio ticked up [by 0.1 percentage points q-o-q] to 1.6% in 4QFY2022with inclusion of Citi assets,” the team notes. “Still, the bank is not seeing stress in any part of its portfolio while coverage is comfortable at 98%. Loans to grow by mid-single-digit from cross-border opportunities as economies reopen and businesses diversify supply chain. Fee income to grow double digits on increase in higher credit card fees and a rebound in wealth management fees.”

The RHB team has upped its FY2023 earnings estimates by 4% to factor in NIM revisions, as well as revisions to its credit cost and operating expenses (opex) estimates after the bank’s guidance.

CGS-CIMB lowers TP on slower NIM growth; sees Citi integration as ‘key positive’ development

CGS-CIMB analysts Andrea Choong and Lim Siew Khee have kept their “add” call as UOB’s core net profit for the 4QFY2022 came in line with their expectations. The bank’s core net profit for the FY2022 also came within their estimates at 96% of their full-year forecasts.

In their report, they see the Citi integration as a “key positive” development over the FY2023 to FY2024 although this could be buffered by UOB’s “fairly conservative” NIM guidance for the FY2023.

As UOB guides for NIMs of above 2.2% in the FY2023, the analysts note that margins could start tapering off in the 2HFY2023 as funding costs catch up. This could then result in end-FY2023 margins moderating close to current levels, the analysts write.

“The bank has also eased off its aggressive fixed deposit (FD) campaign and is now focusing on attracting higher quality (and sticky) current account savings account (CASA) deposit in preparation to recapture maturing FDs into its wealth management or own deposit base thereafter,” say Choong and Lim.

As a result, they have upped their NIM estimates to 2.1% to 2.2% in FY2023 to FY2024 from 2% previously as they factor in expectations of higher asset yields but also funding costs catching up.

Excluding the one-offs from the Citi acquisition, the analysts note that UOB’s core ROE trended at around 14% in the last two quarters of the FY2022.

“Continued NIM uplift should uphold core ROE at least at this level in the near term,” they write.

“With that, we expect higher absolute dividends in FY2023 [with a maintained payout ratio of around 50%],” they add.

“On Basel IV implementation (commencing FY2024), UOB guides for 70-100 bps Common Equity Tier-1 ratio uplift upon commencement, but for this to moderate downwards to be broadly neutral to slightly positive upon full implementation by FY2028-FY2029.”

Further to their report, the analysts have lowered their target price to $33.30 from $34.80 previously as they raise their risk-free rate to 4%. Their estimates also factored in the bulk of Citi integration costs to FY2023- FY2024 from FY2022-FY2023 previously.

OCBC sees mixed 4QFY2022 in UOB’s results

The research team at OCBC Investment Research (OIR) have rated UOB “hold” with a fair value estimate of $34 as they see the bank’s 4QFY2022 results as mixed.

During the last quarter, the team notes the positives from a “solid” NIM expansion that was offset by the negatives from soft loans and higher costs on the back of the one-off expenses from the Citi acquisition.

“While the bank should see positive NII growth and NIM expansion ahead, and benefit from the ongoing reopening of regional Asean economies, the global growth outlook has become more uncertain due to elevated inflation and aggressive Federal Reserve rate hikes,” the OIR team writes.

Bottom-line miss may have led to drop in share price on the same day: Citi

In an unrated report due to the transfer of coverage, Citi Research analyst Tian Yafei notes that shares in UOB traded down by some 4% on Feb 23 after the bank reported its FY2022 results before the market opened.

“The market is likely disappointed by the bottom-line miss, which was weighed down by $246 million of one-off expenses,” Tian writes.

“Management guided on the call that there would be another $300 million - $400 million of integration expenses recorded in FY2023. Currently, core ROE (excluding one-offs) is at around 14%, which management hopes to maintain, ahead of consensus FY2023 ROE of 12.1%,” she adds.

Shares in UOB closed 2 cents lower or 0.07% down at $29.92 on Feb 28.

Analysts remain positive on UOB's FY2023 results; Citi integration seen as 'key positive' development

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