RHB Securities 2015-08-03: UOB - Soft Topline Growth In 2Q15. Maintain NEUTRAL.

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: 
    1. stable net interest margin (NIM) as guided by management with improved loan pricing cushioning a slight uptick in funding costs, 
    2. healthy fee income momentum (+3% QoQ) underpinned by fund management and credit card businesses, and 
    3. 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: 

  1. loans growth of c.5%, 
  2. NIM to remain stable in 2H15, 
  3. credit cost to stay within 30-35bps with lower specific allowance in 2H15, and 
  4. 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/