UOB - OCBC Investment 2016-07-29: Near Term Pressure

UOB - OCBC Investment 2016-07-29: Near Term Pressure UNITED OVERSEAS BANK LTD U11.SI 


  • Higher trading income in 2Q.
  • Subdued mood.
  • Keep HOLD, but cut FV to S$19.61.

2Q was higher than consensus

  • UOB posted 2Q16 net earnings of S$801m, +5.1% YoY and +4.6% QoQ, and marginally ahead of market estimate of S$798m. This was largely driven by higher Non-interest Income, which rose 13.9% YoY and 17.0% QoQ to S$813m, and benefited from higher trading gains. 
  • Net Interest Margin (NIM) eased from 1.77% in 2Q15 and 1.78% in 1Q16 to 1.68% in 2Q16. NPL ratio stayed stable for three quarters at 1.4%. Allowances increased 37% from last quarter to S$161m this quarter. 
  • An interim dividend of 35 cents has been declared and the scrip dividend scheme will apply to the interim dividend.

Exposure to Europe is not significant, but outlook is unexciting

  • Its exposure to China remained flat from last quarter at around S$19.5b. Total exposure to commodities (including oil and gas) grew from S$21.8b last quarter to S$22.8m this quarter or 7.5% of total loans. 
  • Total exposure to Europe stood at S$7.7b as of Jun 2016 or 2.4% of total assets. 
  • While management is fairly positive on its wealth management and credit card business, outlining its plans to grow AUM (S$90b) and explore fee opportunities, the challenging global environment and low global interest rates will continue to stifle growth. 
  • Loans growth for this year is likely to be in the low single-digit level and NIM is likely to stay near the level seen in 2Q16 as China, Malaysia and Singapore are experiencing margin pressure.

Cut FV from S$20.05 to S$19.61; maintain HOLD

  • Despite oil rebounding from recent low, the operating conditions for the local oil & gas sector remain tough and this is likely to dent UOB’s share price performance in the short term due to its exposure to the beleaguered sector. 
  • We have cut our FY17 estimates from S$3237m to S$3119m, and using currently lowered peers’ comparison, our fair value estimate drops from S$20.15 to S$19.61. 
  • Maintain HOLD.

Carmen Lee OCBC Securities | http://www.ocbcresearch.com/ 2016-07-29
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 19.61 Down 20.15