DBS upgraded UOB to Buy from Hold in a note this week, saying earnings beat its expectation and the bank could pay higher dividends ahead.
Singapore bank UOB reported last week that its second-quarter net profit rose 28 percent on-year to a fresh high of S$1.08 billion, amid strong overall operating income.
DBS said the earnings beat its forecasts on strong loan growth, “significantly” lower credit costs and improved fee income.
“Lower credit cost is a new trend for UOB and should be viewed positively,” it said, adding it saw potential earnings upside from the change as well as from further improvement in the net interest margin (NIM).
“UOB’s strong capital position continues to provide opportunities to tap quality loan growth via competitive pricing. Broad-based loan growth outlook for the year continues to stand tall, supported by strong traction in non-loan and transaction banking income,” DBS said.
DBS said it raised its loan growth forecast for UOB to 5-8 percent a year from 5-6 percent previously as loan growth momentum remains strong as the bank leverages on its excess capital to boost loan growth.
It forecast UOB’s NIM would rise by 7 basis points, down from its previous forecast of 9 basis points, this year, and by 4 basis points next year, down from its previous forecast of 5 basis points.
It raised its 2018-20 earnings forecasts for UOB by around 3-5 percent on adjustments to its forecasts for NIM, loan growth and provisions.
It noted that UOB indicated it is looking at a new dividend payout ratio of around 50 percent of net profit.
“We believe there is a possibility of higher dividends above our current assumption of S$1.00/share,” DBS said.
DBS raised its target price on UOB shares to S$31.70 from S$28.30 after rolling over its valuation base to 2019.
Shares of UOB were down 1.09 percent at S$28.03 at 9:11 A.M. SGT on Friday.