United Overseas Bank - CIMB Research 2017-07-28: 2Q17 Steady Quarter

United Overseas Bank - CIMB Research 2017-07-28: 2Q17 Steady Quarter UNITED OVERSEAS BANK LTD U11.SI

United Overseas Bank - 2Q17 Steady Quarter

  • UOB's 2Q17 net profit of S$845m (+5% yoy) was in line with our expectations (S$815m) and consensus (S$825m). 1H17 net profit formed 51% of our full-year forecast.
  • NII rose 12% yoy in 2Q17 on the back of loan growth (+7% yoy) and NIM expansion (7bp yoy to 1.75%). For 2H17F, management guided for NIM to sustain at 1.75%.
  • On the back of rising credit card, fund and wealth management fees, non-NII grew 2% yoy, partly offset by lower net trading income.
  • Specific provisions decreased to 32bp in 2Q17 (1Q17: 49bp) but total credit costs were stable qoq at 32bp as management upheld credit cost discipline.
  • Keep Hold with higher TP. Upside/downside risks are higher NIM/worse asset quality.



Guidance for NIM to stay flat at 1.75% in 2H17F 

  • UOB delivered a steady quarter in 2Q17, which was in line with our expectations. 
  • The group achieved 10.3% ROE in 2Q17 (1Q17: 10%). An interim DPS of 35 Scts was declared, for which the scrip scheme will be applied. 
  • 2Q17 NIM expanded 2bp qoq to 1.75%, led by Singapore and active balance sheet management. Singapore NIM rose from 1.29% in 1Q17 to 1.35% in 2Q17, while interbank balances benefited from both higher volumes and yields. 
  • For 2H17F, management guided for NIM to sustain at 1.75%.


Loans grew 7% yoy but contracted 1% qoq in 2Q17 

  • 2Q17 loan growth was 7% yoy but contracted 1% qoq. Singapore loans grew 5% yoy but were flat qoq. Management noted that competition for housing loans remained fierce; and estimated that the bank had 30-40% market share of new home launches YTD. 
  • Regional loans grew 9% yoy but declined 1% qoq. Loan-to-deposit ratio (LDR) was stable at 86.1% in 2Q17 (1Q17: 86.7%). 
  • Guidance for mid-single-digit loan growth this year was maintained.


Fee income up 9% yoy and 2% qoq 

  • Non-NII inched up 2% yoy in 2Q17, as fees rose 9% yoy on the back of the now-familiar theme of rising credit card, fund and wealth management fees. Other non-NII declined 8% yoy due to lower net trading income. Cost-to-income ratio was stable at 45.6% (1Q17: 45.1%).


Lower specific allowance, total credit costs stable qoq at 32bp 

  • Total allowances were 3% lower qoq at S$180m in 2Q17. Specific provisions decreased 38% qoq, which translated into 30bp of loans (of which, 15bp came from existing NPLs).
  • Total credit costs were stable qoq at 32bp, as the bank stuck to its discipline of building up reserves when specific allowances are low. 
  • NPL ratio was stable qoq at 1.5%, with S$67m NPL formation during the quarter due to new NPLs in Malaysia. Allowance coverage stayed high at 113.9%.


Maintain Hold with higher target price 

  • Overall, we think UOB delivered a steady set of results, with secular strength in fee income plus NIM uptick. However, this is likely to be overshadowed by OCBC’s stellar results that were released the day before. 
  • We maintain Hold on UOB with higher GGM-based target price of S$24.28, as we realign our Singapore discount rates.
  • Upside/downside risks are higher NIM/worse asset quality.




YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-07-28
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 24.28 Up 21.200



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