SINGAPORE (May 4): UOB has enough room to boost its dividend payout given its capital buffer, says Phillip Capital, citing the bank's Tier 1 capital ratio of 14.9% versus the bank’s usual comfort level of 13%.
"The bank could return this capital through dividends or deploy the capital to compete more aggressively," says Phillip’s research team in a Friday research note.
A 1.5-percentage-point cut in the ratio could mean nearly $3 billion -- or $1.80/share -- of special dividends the next two to three years, says Phillip. But there could be little upside surprise left after its stock price jumped by 0.33% since September.
Phillip has a higher target price of $31.70 on a higher ROE and earnings although rating has been downgraded to “accumulate” due to the share price.
Maybank KimEng sees UOB as a laggard play among Singapore banks, trading at 1.2 times, which is cheaper than the 1.3–1.5 times for peers. Dividend yield of 4.4% for FY18E should also provide share price support.
While loan growth was lower at 5% y-o-y versus UOB’s expectation of 10%, Maybank expects the outlook to improve in the coming quarters.
Management has reiterated guidance for high single-digit loan growth while Maybank has raised net interest income by 2-4% for FY18-20 after factoring in a higher SIBOR forecast.
NIM is also expected to expand to 1.86-1.99%. FY18-20E credit costs should stay at between 21-24bps in a benign credit environment, lower than the average of 30bps between FY10-17.
“We raise our FY18F-20F EPS by 3.7-4.2% as we increase our NIM expectations and reduce our credit costs assumptions. We also increase our FY18F-20F DPS by 33-56%, expecting UOB to dish out a total FY18F-20F DPS of $1.20-1.40/share, assuming 50% payout,” says Maybank analyst Ng Li Hiang.
Maybank has a “buy” with a target price of $32.88.
CGS CIMB Securities says UOB’s NIM expansion and loan growth is tracking that of DBS’s. NII increased 13% y-o-y as NIM expanded 11bp y-o-y to 1.84% while gross loans increased 5ppt y-o-y.
Analyst Yeo Zhi Bin says this underscores CGS CIMB’s confidence that the bank is on track to achieving high-single digit expansion for both NIM and loan growth for FY18F.
“We note that q-o-q NIM expansion was driven by loan yields and increases across all of UOB’s Asean markets,” says Yeo who is factoring a higher 8bp increase in NIM for FY18F from 5bp.
Asset quality was stable with NPA formation normalising to $416 million. NPA allowance coverage was maintained at 91bp of loans while the NPL ratio dipped to 1.7%.
“With strong capital buffers and returns, we believe UOB can easily sustain a 50% payout. Add maintained with an unchanged target price of $33.00,” says Yeo.
OCBC Investment Research, who has a “hold” on the stock, says UOB’s share price has gained 14.2% year-to-date, outperforming the Straits Times Index and most key regional indices for the same period.
Since its last report in 2018, UOB has gained about 8%, says OCBC. With the more favourable outlook and better margin expectation, OCBC has raised its NII which in turn led to a 1.5% increase at the bottomline, resulting in projected FY18 earnings of $4 billion versus $3.8 billion previously.
In a Thursday report, analyst Carmen Lee says management seems cautiously optimistic about its outlook and expects NIM to trend upwards with a benign credit environment.
On the Oil & Gas front, management believes that the restructuring in the sector is still on-going and do not expect any major recovery this year.
“We have raised our fair value estimate marginally from $30.86 to $31.02,” says Lee, “We prefer to be buyer of the stock at $29.00 or lower.”
Based on dividend payout of $1.00, yield is about 3.3%.
As at 1.14pm, shares in UOB are down 37 cents at $29.21 or 11.2 times FY18 core forecast earnings by Maybank.
