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.

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%.

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.

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%).

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%.

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