UOB - RHB Invest 2017-02-17: Lower Overall Provisions Due To GP Write-back

UOB - RHB Invest 2017-02-17: Lower Overall Provisions Due To GP Write-back UNITED OVERSEAS BANK LTD U11.SI

UOB - Lower Overall Provisions Due To GP Write-back

  • We project a higher NPL ratio of 1.7% by end-2017 (vs 4Q16 of 1.5%), due to the oil & gas space and slowing economy. 
  • UOB’s 1.2% GP-to-loan ratio is the highest amongst peers, and provides scope for a further write-back. The anticipated Fed rate hikes would also bring NIM closer to our 2017 forecast of 1.76% (from 2016’s 1.71%). 
  • We raised our 2017 net profit forecast by 10% on lower provisions and higher non-interest income. 
  • Maintain BUY with a higher TP of SGD23.90 (from SGD22.90, 15% upside), as we raise our ROE assumption to 10.4% (from 10.1%).

We forecast future increases in NPL ratio

  • We forecast future increases in NPL ratio despite the marginal dip to 1.5% (from 3Q16’s 1.6%). The 4Q16 NPL reduction was partly due to higher write- offs, but we believe the soft economic environment could raise NPLs ahead.

We cut 2017 provisioning expectations by 10%. 

  • 4Q16 provisions were down 29% QoQ, as higher specific provisions were offset by a general provisions write-back. 
  • UOB’s GP ratio of 1.2% remains higher than peers and provides scope for UOB to further write-back in the quarters ahead.

NIM widening in 2017. 

  • We expect 2017 NIM to widen to 1.76% (from 2016’s 1.71%), along with the anticipated US Federal Reserve rate hike. Management guided for a mid-single digit 2017 loan growth, and we forecast 4.5%. 
  • All these are likely to contribute to a stronger net interest income.

Maintain BUY. 

  • After fine-tuning our assumptions, we tweak our GGM-derived TP to SGD23.90 on: 
    1. Factoring in 9.1% CoE and 10.4% ROE (2016 ROE was 10.2%); 
    2. Implying1.2x2017FP/BV.


  • The downside risks to our forecast include higher-than-expected impairment charges and weaker-than-expected NIMs. 
  • The converse represents the upside risks.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-02-17
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 23.900 Up 22.900