UOB’s Q2 Strong on Rising Rates; Expect Weaker Loan and Fee Growth on Macro Uncertainties

UOB reported a strong second-quarter profit of SGD 1.1 billion, up 11% year on year. Interim dividend per share, or DPS, of SGD 0.60 was unchanged from last year. Net interest income grew 18% year on year, while net interest margin, or NIM, expanded 9 basis points quarter on quarter, ahead of our expectation. However, net fee income fell 3% year on year, mainly driven by a drop in wealth fees given weaker market sentiment, partly offset by stronger loan and trade related and credit card fees. Management observes businesses taking a more cautious approach with heightened concerns on inflationary risks, supply chain issues and recession fears. As a result, we adjust our assumptions leading to higher NIM but this is offset by lower loan and the related fee growth in second-half 2022. Our fair value estimate for UOB is unchanged at SGD 39 but we reduce our fiscal 2022 dividend forecast to SGD 1.17 per share. We see the bank’s shares as attractive at close to 30% discount to our fair value estimate and 4.2% 2022 dividend yield, as of 29 July close.