UOB - OCBC Investment 2017-07-28: WEALTH DELIVERED HIGHER EARNINGS

UOB - OCBC Investment 2017-07-28: WEALTH DELIVERED HIGHER EARNINGS UNITED OVERSEAS BANK LTD U11.SI

UOB - WEALTH DELIVERED HIGHER EARNINGS

  • 2Q ahead of expectations.
  • Broad-based growth.
  • Upping FV to S$23.00.



2Q earnings of S$845m; above consensus 

  • UOB posted 2Q17 net earnings of S$845m, up 5.5% YoY and 4.6% QoQ, and better than consensus estimate of S$816m. This led to 1H17 net earnings of S$1652m, up 5.5%. 
  • Both Net Interest Income and Non-interest Income saw YoY and QoQ improvement. The latter received a lift from better contributions from credit card, fund and wealth management. 
  • Net Interest Margin (NIM) improved from 1.68% in 2Q16 and 1.73% in 1Q17 to 1.75% in 2Q17. 
  • NPL ratio held stable at 1.5%. Allowances stood at S$180m, down marginally from last quarter. 
  • The group has declared an interim dividend of 35 cents.


Guiding for flat to slightly better margin 

  • Management is guiding for NIM to be flat or slightly up for 2017. In addition, management is expecting mid-single digit loan growth for the year (loans growth in 1H 2017 was 7.4%). 
  • Reflective of the recent pick up in residential property transactions and en-bloc activities, management is also of the view that Singapore’s residential market has bottomed. Based on the Singapore Property Price Index, it recorded the 15th quarter of decline for the June quarter, but it is also worth noting that this is the slowest pace of quarterly decline in the past few years.


Wealth did well 

  • In 2Q17, one clear winner was Wealth Management, which posted a 24% YoY and 7% QoQ increase in contribution to S$136m – the largest contributor to its Fee & Commission Income. 
  • While cost and some technology-related expenses are likely to go up, we expect the cross-selling of more products in its key markets to provide organic growth for its Wealth unit. We have raised our FY17 earnings, mainly to account for higher fee income in 2H17. As a result, we are also increasing our fair value estimate to S$23.00. 
  • At current price, we believe that any benefits from a potential hike in interest rate later in the year have already been priced in and will turn buyers of the stock at S$22.00 or lower. 
  • Maintain HOLD.






Carmen Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-07-28
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 23.00 Up 21.660



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