Soft Topline Growth In 2Q15
- 2Q15 earnings were slightly below market expectations.
- Net profit fell 5% QoQ and 6% YoY on lower trading and investment income and higher tax provisions.
- Maintain NEUTRAL with a revised TP of SGD24.30 (9.5% upside), as we believe concerns over soft topline growth and asset quality have been largely priced in.
- The stock is trading at 1.15x FY15F P/BV (-1SD historical mean).
2Q15 a slight miss, earnings down 5% QoQ.
- United Overseas Bank (UOB) posted 2Q15 earnings of SGD761m (-6% YoY, -5% QoQ), accounting for 92% of consensus forecasts.
- Net profit fell on lower trading and investment income (-30.5% QoQ), negative jaws as operating expense rose 3% QoQ vs a 2% QoQ drop in operating income, and normalisation of tax provisions following a tax writeback in 1Q15.
- Interim DPS rose to 35 cents (1H14: 20 cents).
2Q15 key highlights.
- The positives were:
- stable net interest margin (NIM) as guided by management with improved loan pricing cushioning a slight uptick in funding costs,
- healthy fee income momentum (+3% QoQ) underpinned by fund management and credit card businesses, and
- liquidity improved with 3% YTD growth in customer deposits lowering loan-to-deposit ratio to 82.3% (Mar 2015: 83.4%).
- The key negative was weaker-than-expected loan growth (+1.5% YTD) partly due to depreciation of regional currencies.
Asset quality sound.
- Gross impaired loans (GILs) rose 3% QoQ to SGD2.5bn led by Malaysia (+9% QoQ) and Indonesia (+7% QoQ), with reclassification prompted by the weak economic environment.
- Still, GIL ratio remained manageable at 1.24% (Mar 2015: 1.2%) while loan loss coverage was a comfortable 144% (Mar 2015: 147%; Dec 2014: 145.9%).
- Annualised credit cost was 30bps (1Q15: 34bps).
- Its Singapore housing portfolio had a SGD38m rise in GIL from eight accounts.
Management’s 2015 guidance:
- loans growth of c.5%,
- NIM to remain stable in 2H15,
- credit cost to stay within 30-35bps with lower specific allowance in 2H15, and
- cost-to-income ratio of 42-43%.
Maintain NEUTRAL.
- We cut our GGM-based TP to SGD24.30 (from SGD25.40) after lowering our assumption on long-term growth.
- Our revised TP implies 1.3x FY15F P/BV. UOB’s share price has underperformed its Singapore peers, reflecting investor concerns over its soft topline growth and asset quality of its ASEAN operations.
- However, at 1.1x FY15F P/BV, we believe much of the concerns are priced in.
Analyst: Singapore Research
Source: http://www.rhbgroub.com/
