Despite UOB’s dividend cut, Lim still views its yield of 4% “relatively attractive” with the bank’s management indicating its willingness to revert to its FY2019 dividend policy.
For more stories about where the money flows, click here for our Capital section
“We believe the market has priced lower net interest income in FY2021F. As we expect some asset quality deterioration in 2HFY2020 and 1HFY2021, especially when the various moratoriums and reliefs expire, share price upside may be capped at around 1x price-to-book (P/BV),” she shares.
Lim has also identified lower-than-expected credit costs and recovery in return on equity (ROE) post-Covid-19 as potential catalysts that can drive UOB’s share price.
See also: SAC Capital initiates ‘buy’ on Sanli Environmental after $105.3 mil contract win from PUB
However, key risks in her view include a deteriorating asset quality
“A larger-than-expected NPL arising from generic sectors and/or commodity-related exposure, as well as a worse-than-expected COVID-19 pandemic situation globally, could unwind expectations of credit cost and NPL declines, thus posing risks to earnings. Further, unemployment arising from recession could pose risks to mortgages and unsecured consumer lending, among others,” she says.
SEE: SGX and UOB ink MoU with CCOIC at second Belt & Road Forum in Beijing
See also: CGSI downgrades Grab to ‘hold’ ahead of 2QFY2025 results, expects consumer spend to slow in 2H2025
Lim has maintained her “buy” recommendation on UOB with a higher target price of $24.80 from $22.20 previously.
Shares in UOB closed 47 cents higher or 2% up at $23.60 on Nov 24.
