UOB offers recovery play, with estimates raised: DBS

UOB branch at Tiong Bahru PlazaUOB branch at Tiong Bahru Plaza. Image taken pre-Covid.

UOB‘s shares offer a recovery play as net interest margin (NIM) improves, DBS Group Research said, raising its estimates.

“We believe there is further room for UOB’s share price to re-rate as we continue to expect economic recovery, looking ahead to a higher interest rate environment,” DBS said in a note Friday.

“UOB is looking towards some NIM improvement into FY22F as it gears up on regional loans, which typically have higher NIMs, amidst continued momentum in loans, wealth management, and other fee income,” the note said.

UOB also has a potential positive catalyst if credit costs are lower than expected, which would drive earnings, while a post-Covid recovery in return on equity could boost the share price, the note said.

UOB’s third quarter net profit came in slightly ahead of consensus, DBS said.

UOB reported Wednesday its third quarter net profit increased 57 percent on-year to S$1.05 billion on healthy loan growth, sustained fee income and lower credit allowance. UOB posted net interest income increased 9 percent on-year to S$1.60 billion in the July-to-September quarter, the bank said in a filing to SGX. The net interest margin (NIM) rose two basis points to 1.55 percent, the bank said.

DBS said it was raising its 2021 to 2023 earnings assumptions by 3-5 percent on lower credit cost assumptions.

The target price was raised to S$31.00 from S$29.20, keeping a Buy call.

Shares of UOB rose 1.43 percent to end Friday at S$27.59.