United Overseas Bank UOB - Maybank Kim Eng 2016-04-29: Next Leg: Growth and Capital

United Overseas Bank UOB - Maybank Kim Eng 2016-04-29: Next Leg: Growth and Capital UNITED OVERSEAS BANK LTD UOB bank U11.SI 

United Overseas Bank (UOB SP) - Next Leg: Growth and Capital 

Stagnant topline growth 

  • 1Q16 results reflected the two major issues facing UOB and the sector: 
    1. limited revenue opportunities and 
    2. capital constraints. 
  • 1Q16 core PATMI of SGD766m (-2.8% QoQ, -4.4% YoY) was let down by slower topline growth. 
  • Fully-loaded CET1 at 12.1% was at the borderline of group’s comfort level. 
  • NIMs are likely to remain flat as the rise in rates is unlikely to be as pronounced as in 2015. 
  • Against the backdrop of economic uncertainties and fears of delinquency, UOB would stay circumspect and judicious with its asset book; profit prospects would be subdued. 
  • Maintain HOLD with SGD16.96 TP, based on 0.9x FY16 P/BV, close to 1SD below 10-year mean, to reflect our ROE forecast which is below historical average. 

Limited growth opportunities and RWA constraints 

  • A slower growth environment in Singapore is likely to limit opportunities, as Singapore’s loans are 56% of total loans. The bank will be selective on loans as outlook remains uncertain. 
  • Fully loaded CET1 ratio improved to 12.1%, +40bps higher than last quarter but lower than a year ago (4Q15: 11.7%, 1Q15: 12.8%). 
  • Capital restraints and the volatile environment in 1Q16 led UOB to focus on controlling loans and RWA growth. As RWAs continue to increase, strengthening RWA utilisation in the next few quarters is now important. 
  • Management is also currently reviewing major non-core assets to bolster capital. 

Relief in asset quality concerns 

  • Without much revenue growth or asset divestments, cash flows in the corporate sector should stay tight. 
  • Even as NPLs were flat at 1.4% QoQ, delinquencies are surfacing at the margins, as reflected by migration of NPLs to more serious categories. 
  • Transport sector declined by 40bps QoQ to 9.4%. Indonesia’s NPL ratio continued to climb to 5.2% (4Q15: 4.9%). NPLs have not peaked. 

Maintain HOLD 

  • Share price has since rebounded from February’s lows and is now trading at ~1x P/BV, close to 1SD below 10-year mean. 
  • Catalysts for the stock include 
    1. stable market outlook, 
    2. higher repricing, 
    3. RWA optimisation.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-29
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 16.96 Same 16.96