UNITED OVERSEAS BANK LTD
UOB bank
U11.SI
UOB - NIM To Stay Narrow On Soft Interest Rates
- Current low interest rates have contributed to a 10bps QoQ squeeze in NIM, and we have lowered our 2016 NIM expectation to 1.75%.
- We expect NPLs to rise through 2H16 on the weak economy, although asset quality was unchanged sequentially, with 2Q16 NPL ratio of 1.4%.
- We raise our FY16 net profit forecast by 1% and maintain NEUTRAL, with unchanged GGM-derived TP of SGD18.85 (0% upside).
- Interim dividend of 35 cents was declared.
Net interest margin (NIM) to remain narrow after 10bps sequential decline.
- Net interest income contracted 5.1% QoQ due to sequential NIM narrowing of 10bps on the back of a declining interest rate environment. With interest rates seen to remain low in the near term, we have cut our 2016 NIM forecast to 1.75% (from 1.81%).
- UOB expanded its 2Q16 loans by 1.4% sequentially, driven by a 4% QoQ rise for building and construction loans. Management guided for 2016 loan growth to be in the mid single-digit level, and we are forecasting 3%, on a weaker Singapore loan trend.
Expect stable credit cost.
- UOB recorded 2Q16 credit cost of 32bps, unchanged from 1Q16.
- New non-performing assets (NPAs) increased by SGD802m in 2Q16, compared with 1Q16’s SGD344m.
- Management indicated that the new non-performing assets in 2Q are mainly from the oil and gas sector. It sees the charge-off rate remaining forecast 2016 credit cost of 36 bps.
2Q16 net profit was 5% higher YoY.
- This is in line with 1H16 earnings, accounting for 55% of our forecast.
- Our GGM-derived TP of SGD18.85 factors in 9.9% cost of equity and 9.9% ROE.
- Risks to our forecasts include higher- than-expected impairment charges and weaker-than-expected NIMs.
Leng Seng Choon CFA
RHB Invest
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http://www.rhbinvest.com.sg/
2016-07-29
RHB Invest
SGX Stock
Analyst Report
18.85
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18.85
