CFA Society Singapore
SINGAPORE (Feb 22): United Overseas Bank is the top pick for Singapore banks, says RHB Research which believes the share price weakness after the results release offers a good entry point.
UOB has also declared a final dividend of 50 cents per share and special dividend of 20 cents per share. FY2018 total dividend of $1.20 gives an attractive yield of 4.6%.
Rising 18% y-o-y, UOB’s FY2018 earnings of $4.01 billion came in line with RHB’s forecast of $4.16 billion and consensus’ forecast of $4.05 billion.
For FY2019, management has guided for net interest margin (NIM) to be flattish y-o-y, with an upward bias.
As loans are repriced with a lag of about three months, UOB says home mortgage upwards repricing should help raise asset yields.
“We forecast 2019 NIM of 1.84%, vs 2018’s 1.82%,” says analyst Leng Seng Choon in a Friday report.
Management has also guided for mid single-digit FY2019 loan growth.
4Q18 loans expanded 11% y-o-y and 3% q-o-q, driving up NII (net interest income) but drawdown was muted after the property cooling measures of July 2018.
Management guided for fees to expand by mid single-digits in 2019.
Cost income ratio (CIR) is expected to remain at 44% in the near term.
“While we believe CIR will improve across all banks over the longer term, as digitisation efforts lower costs, management guided for 44% in the near term,” says Leng.
“Maintain ‘buy’ with unchanged target price of $29.80 – pegged to 2019F P/BV of 1.35x,” says Leng.
“Our long-term ROE assumption is 12.9%. This is higher than UOB’s 2018 ROE of 11.3%, and management guidance for 2019 ROE of 12%.”
Shares in UOB closed 40 cents lower at $25.58 on Friday.