NIM expansion and lower credit cost
? UOB’s net profit of S$1.02bn was in line with our/consensus estimates.
? NIM expansion of 1bp qoq to 1.57% and lower credit costs of 12bp in 4Q21 offset weaker treasury income due to softer trading conditions at year-end.
? Reiterate Add. UOB lowered loan growth guidance to mid-single-digit in FY22F and we deem credit cost commentary to be slightly negative.
4Q21 net profit was flattish qoq as NII offset treasury weakness
? UOB recorded 4Q21 net profit of S$1.02bn (-3% qoq/+48% yoy). This was in line with our/consensus estimates. FY21 made up 99%/101% of our/consensus full-year estimates.
? UOB declared final DPS of S$0.60, bringing full-year DPS to S$1.20 (53% payout) in FY21 (FY20: S$0.78), below our expected S$1.30.
? CET1: 13.5% in 4Q21 (3Q21: 13.5%), ROE: 10.2% in 2H21, 10.2% in FY21 (3Q21: 10.1%, FY20: 7.4%).
NIM rose 1bp qoq, credit cost lower at 12bp in 4Q21
? NII increased 5% qoq as NIM rose 1bp qoq to 1.56%. Fee income was resilient (flat qoq/+13% yoy) in 4Q21 as seasonally softer wealth management fees were offset by higher loan-related fees.
? As a w hole, total non-II dipped 11% qoq (+3% yoy) as treasury income was weighed down by softer trading conditions towards the year-end (-43% qoq/-29% yoy). PPOP w as steady qoq as opex was well contained, although CTI rose to 45% in 4Q21 (3Q21: 43.7%) due to weaker income.
? UOB recorded credit costs of 12bp in 4Q21 as 22bp specific provisions (SPs) were offset by 10bp general provision (GP) writeback following better clarity and confidence in its market recovery outlook.
? NPL ratio rose to 1.6% in 4Q21 (3Q21: 1.5%) on the back of a particular uptick in net new NPA during the quarter.
Stabilising operating performance but guidance lowered
? Management guided for mid-to-high single-digit loan growth (revised downwards from high single-digit previously) but maintained its forecasts for double-digit non-II growth and stable CTI.
? It also said it projected credit costs to normalise on the back of UOB’s resilient portfolio (revised from “lower credit cost of below 25bp” previously). Note that UOB recorded average c.32bp credit costs over FY10-20, with SPs trending at c.24bp over this period.
? We see neutral to negative share price movement on the back of the lowered guidance.
Valuation and recommendation
? We retain our Add call and GGM-based target price of S$33.50.
? Upside risks: higher-than-expected quantum of Fed rate hikes. Downside risks: reintroduction of Covid-19-related social distancing measures and, consequently, moratorium schemes.