SINGAPORE (June 13): OCBC Investment Research sees value is emerging from UOB Bank at its current share price of $27.24 with 3.7% yield based on a dividend payout of $1.00.
In its last report dated May 3, OCBC had downgraded the stock to a “hold”, recommending investors buy the stock at $29.00 or lower. Since then, UOB has dropped below $28.00, down about 7% in the past one month from the recent high of $30.14.
With improving market outlook, lead analyst Carmen Lee is more optimistic about the operating environment for Singapore banks.
“We expect improving NIM to be a key feature this year.” says Lee, “While management has earlier indicated the possibility of a special dividend this year, based on what was given out last year, which amounted to a total of $1.00 (dividend of 80 cents plus special dividend of 20 cents), current dividend yield of 3.6% will complement the potential price upside to our fair value estimate of $31.02.”
To recap, UOB delivered 1Q18 net earnings of $978 million, up 21% y-o-y. Better Net Interest Margin (NIM) together with healthy loans growth of 5% led to a new high of $1.47 billion in Net Interest Income, which is 13% higher y-o-y.
NIM rose to 1.84% in 1Q18 from 1.73% in 1Q17 and 1.81% in 4Q17. Net fee and commission income increased 18% y-o-y to $517 million, supported by growth in wealth management, fund management and loan-related fee income.
Cost-to-income ratio stood at 44.2% this quarter. Non-Performing Loan was at 1.7%, down from 1.8% in the previous quarter. Allowances fell sharply to $80 million this quarter from $140 million last quarter.
Still, OCBC’s Lee says there is no change in its projections for the group’s fundumentals and is retaining its FY18 net earnings estimate of $4007 million – the highest level in its operating history.
As at 12.54pm, shares in UOB are down 62 cents at $27.24 or 10 times FY19 earnings.
