- D/G to NEUTRAL from Buy, new SGD32.70 TP from SGD38.10, 9% upside, c.4% yield. 1Q22 results missed expectations mainly on lower non-II. Although trading and investment (T&I) income is expected to rebound in 2Q22, we trimmed non-II due to the more challenging outlook. Our TP is lowered on account of higher risk premium and a tweak in the ESG score to 3.2 (from 3.3) as we recalibrate assessment of risks and regulatory requirements associated with data and cybersecurity. Share price should consolidate in the near term, given its YTD outperformance and more subdued FY22F earnings growth.
- 1Q22 results missed expectations. Net profit of SGD906m (-11% QoQ, -10% YoY) was at 20% of our and consensus’ FY22F earnings. Reported ROE was a lower 8.8% vs FY21’s 10.2%, while CET-1 was relatively stable at 13.1%. PIOP fell 7% YoY as net fee income dropped 8% on lower wealth management and fund management, and T&I income plunged 83% (impacted by hedges and mark-to-market (MTM) losses on investments). The sharper bottomline decline was mainly due to higher tax provisions following Malaysia’s imposition of prosperity tax for 2022. Provisions fell 11% on a SGD2m write-back of general allowance (GP) vs a SGD136m charge in 1Q21. Credit cost was 19bps vs 22bps in 4Q21 and 29bps in 1Q21.
- FY22 guidance. While domestic recovery in regional countries are still at a nascent stage, management is keeping a close watch on macroeconomic developments, given the geopolitical conflict and China’s pandemic-related lockdown. Loan growth guidance of mid-to-high single digit growth in 2022 remains intact, and would likely be driven by lending to the wholesale segment. UOB now expects the US Federal Reserve to raise rates six times (from five times) in 2022, with every 25bps hike adding 4bps to NIM and SGD150m-200m in NII. NIM is expected to rise to 1.60-1.62% in 2Q22 and reach 1.70% in 4Q22. Non-II, which was earlier projected to grow by double digits, may be impacted by lower wealth management fees. Given that the MTM loss in 1Q22 is one- off, management guides for T&I income to recover to SGD200m per quarter from 2Q22. See Figure 2 for details.
- Asset quality stable. Management believes headwinds from current macro developments would likely have some impact from China. That said, the exposure should be manageable, and the bank’s regular stress testing of portfolio has not revealed any significant weakness. UOB’s NPL ratio was stable at 1.6% while NPA coverage is at a healthy 94%. Management is comfortable with its credit cost guidance of 20-25bps for FY22F. The bank is unlikely to write-back GP reserves in the near term.
- Earnings and TP lowered. Our earnings forecasts are trimmed by 5-6% for FY22F-24F to take into account the 1Q22 MTM trading loss as well as more conservative assumptions on non-II, given the more challenging environment for wealth management and T&I. Our TP is revised to SGD32.70 as we refreshed GGM assumptions for higher equity risk premium and a lower 4% (from 6%) ESG premium, based on our in-house proprietary methodology.
Source: RHB Research - 4 May 2022
