UOB shares rally sharply despite missing profit estimates
UOB shares rallied steadily throughout Thursday, even after the group’s net profit fell below analyst estimates.
UOB share price: What’s the latest?
Singapore’s third largest money lender United Overseas Bank (UOB) (SGX: U11) saw its share price rise 1.55% on Thursday 06 August 2020, despite posting lower profits for the second quarter of fiscal 2020.
As at 15:30 SGT on Thursday, UOB shares are trading at S$19.78 each on the IG platform – an intraday high. Share price remains lifted as of press time.
IG’s market analysis shows that ‘buys’ form 67% of all trades on the UOB counter in the last one hour, while ‘sells’ made up 57% of all trades across the day.
Additionally, 83% of client accounts also currently hold ‘buy’ (long) positions on the stock, indicating an expectation for UOB’s share price to rise in the immediate term.
As of 30 July 2020, the stock has a 12-month consensus share price target of S$20.66 per share from six analysts, alongside an average rating of ‘hold’ – based on a Refinitiv poll of 18 brokers.
UOB’s net profit falls 40% in Q2 of 2020
The bank announced its earnings for the three months ended 30 June 2020 before the market opened on Thursday.
It reported a net profit of S$703 million for Q2 2020, 40% lower than that of Q2 2019. It attributed this decline to lower margins and higher credits costs.
This figure also missed Refinitiv survey estimates of S$781 million for the quarter.
Breaking down by income segment, net interest income decreased 12% year-on-year to S$1.46 billion in Q2, as margin compression offset the loan growth of 3%.
Net fee and commission income was 15% lower than Q2 2019 at S$445 million, as movement restrictions across the region weighed on customer activities. Trading and investment income declined to S$294 million from S$311 million a year ago, largely due to lower net trading income.
Meanwhile, total operating expenses decreased 8% to S$1.04 billion in line with lower income, resulting in a cost-to-income ratio of 46% for the quarter.
Finally, asset quality marked by non-performing loan (NPL) ratio stood at 1.6% for 2Q20, unchanged from last quarter as NPL formation was low this quarter.
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UOB lowers Q2 dividends by 30% to S$0.39 per share
Consequently, the group proposed an interim one-time tax-exempt dividend of S$0.39 per share, down 29% from the amount of S$0.55 paid a year prior. A scrip dividend payment option will be provided this year.
The lower dividend sum is in line with the Monetary Authority of Singapore’s call last week for banks to cap the total dividends per share (DPS) at 60% of the prior year’s DPS, as well as to make available the option to receive dividends in scrip.
UOB foresees upside to net interest margin in upcoming quarters
Looking ahead, the group says its it will continue its approach of ‘balancing growth with stability’, so as to ‘drive shareholder value and dividends in a sustainable manner’.
In terms of specific outlook areas, UOB says it will focus on the long-term growth potential of the Group Wholesale Banking and Group Retail segments.
It also foresees that there will be some upside to net interest margin in the second half of 2020, with moderate rebound in fees also expected in the next two quarters as economies gradually reopen.
In terms of credit outlook, the group says credit costs are likely to remain around Q2 2020 levels, ‘with more preemptive allowances to cushion anticipated asset quality weaknesses’.
Wee Ee Cheong, UOB’s Deputy Chairman and Chief Executive Officer, said: ‘Over the last few months, the Covid-19 pandemic has upended the way we live and work, with businesses and individuals having to deal with unprecedented challenges. With the global economy moving into the deepest recession in recent history, our financial performance for the first half of the year has not been immune to the impact.
‘However, UOB entered this crisis from a position of strength, having built our resilience through weathering past storms, be they economic, man-made or natural disasters. We maintain prudence and discipline in our risk management and will continue to strengthen our provision coverage.’
How to trade UOB with IG
Are you feeling bullish or bearish on UOB shares? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:
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