UOB eyes easing credit costs, focuses on wealth arm

• UOB (SGX: U11) share price gains 2.55% to S$24.49 a share after posting a 32% profit decline in Q4 2020
• The bank foresees lower credit costs and stabilised net interest margins
• Most analysts kept their ‘buy’ recommendations despite the lower profits
• Trade UOB shares, long or short, with an IG account

UOB Q4 earnings tumble 32%

Southeast Asia-focused United Overseas Bank (UOB) on Thursday (25 February 2021) reported net profit of S$688 million for the fourth quarter of 2020, down 32% year-on-year but inching up 3% from the prior quarter. That was slightly below the average estimate of S$696.3 million from Refinitiv’s poll of four analysts.

For the whole of last year, net profit slumped 33% to S$2.92 billion, while total income fell 8%.

This came as economies contracted amid the Covid-19 pandemic, with lower margins due to cuts to benchmark interest rates and reduced customer activities, UOB said. Consumers spent less on their credit cards while business activities dwindled with the social-distancing measures in place.

UOB’s board recommended a final dividend of S$0.39 per share with an option for a scrip dividend.

When will profit return to pre-Covid levels?

Singapore’s third-largest listed bank expects credit costs to moderate downwards in 2021 as government loan moratorium programmes launched at the start of the coronavirus crisis come to an end.

Meanwhile, net interest margin (NIM) will likely stabilise for UOB this year, even as interest rates may remain muted in the near future, the lender said. Although its NIM at end-2020 narrowed to 1.57% from 1.78% in 2019, it improved from 1.53% at the end of September 2020.

CEO Wee Ee Cheong said the bank believes it can recover to pre-pandemic profit levels ‘in the next few years’, driven by top-line growth and lower credit costs, and deliver better return on equity to shareholders.

The rosy outlook helped UOB shares advance. They were trading 2% higher at S$24.36 by 10:10 SGT, with 2.1 million shares changing hands.

Out of 20 research teams, 13 had a ‘buy’ rating on the stock, six said to ‘hold’ and one recommended ‘sell’. Their average target price was S$25.48, according to Bloomberg data.

On Thursday, Morgan Stanley kept its ‘overweight’ rating with a S$27.40 target, and CIMB reiterated ‘add’ and a S$27.72 target. Macquarie last week gave an ‘outperform’ call and a S$26.60 target price.

Wealth pivot

With NIM likely to stay low, UOB is now ‘rebalancing’ its business with an emphasis on wealth management and connectivity-related products and services, Wee said.

This is meant to drive higher fee income and is in line with UOB’s omnichannel approach as customers shift to digital banking solutions, Wee added.

A strong growth in wealth management, fund management and loan-related fees had driven net fee and commission income to rise 10% in the fourth quarter last year, compared to the third quarter.

The bank will also continue to sharpen its regional strategy to ensure sustainable growth, Wee said.

How to trade UOB shares with IG

Are you feeling bullish or bearish on UOB’s stocks?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform, or by investing in the share directly, in a few easy steps:

1. Create a live or demo IG Trading Account, or log in to your existing account
2. Enter <United Overseas Bank> in the search bar and select the instrument
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade