Brokers' take: CGS-CIMB sees revenue growth for Singapore banks; UOB its top pick

CGS-CIMB has selected UOB among banks as its top pick on expectations the lender's growth momentum and lower credit cost would become its key differentiating factors in Q1 2021.

The brokerage forecast the bank's FY2021 price-to-book ratio at one time, while that of its peers at 1.1 times to 1.4 times. It is maintaining its "add" call and target price of S$27.72 for UOB.

In a Monday report, CGS-CIMB noted that UOB's loan growth is on track to meet its full-year guidance of a high single-digit. As the bank reaps results from its pipeline of deals built over the past quarters, analysts Andrea Choong and Lim Siew Khee predicted that UOB will see 45 per cent quarter-on-quarter (qoq) net profit growth and a 3.5 per cent qoq loan growth in Q1 2021.

They also estimated little growth in its net interest margin, reaching 1.6 per cent qoq in the three months.

The brokerage is also predicting similar revenue trends across Singapore banks, with better net interest, fee, and treasury income. However, CGS-CIMB said UOB could show stronger non-interest income earnings supported by its steady customer trading activity and advisory services to corporate clients.

Given UOB's weaker trading income performance in Q4 2020, the brokerage expects it to have higher growth in its pre-provision operating profit in Q1 2021 as compared to its peers.

Meanwhile, it is predicting variance in the banks' approach towards credit costs. UOB had earlier reiterated its low base case of 30 basis points credit costs in 2021, equally spread over the year, incorporating delayed non-performing loan formation of about S$2 billion. According to the analysts, this will materialise in heftier quarterly specific provisions when they arise, or otherwise topped up with pre-emptive general provisions.

"A strong show of earnings could close the valuation gap between UOB and peers," said CGS-CIMB.

As at 1.20pm on Tuesday, UOB shares were trading at S$26.28, up S$0.05 or 0.2 per cent.