UOB - OCBC Investment 2017-02-17: Steady Growth Despite Challenges

UOB - OCBC Investment 2017-02-17: Steady Growth Despite Challenges UNITED OVERSEAS BANK LTD U11.SI

UOB - Steady Growth Despite Challenges

  • In line results.
  • Single-digit loans growth.
  • Raising FV to S$20.55.

4Q16 in line with expectations 

  • UOB delivered net earnings of S$739m, down 6% YoY or 7% QoQ , slightly better than market expectations of S$730m based on a Bloomberg poll. This led to full year earnings of S$3096m, down 3.5%. 
  • Unlike its peers which saw increases in total allowances for the last quarter, UOB bucked the trend with a decline from S$190m in 4Q15 and S$185m in 3Q16 to S$131m in 4Q16. 
  • Specific allowances actually went up from S$288m in 3Q16 to S$428m, but total allowances dropped largely due to a release in general allowance of S$310m. NPL ratio also fell from 1.6% in 3Q16 to 1.5% in 4Q16. 
  • Net Interest Margin (NIM) held steady from the previous quarter at 1.69%. 
  • Management has declared a final dividend of 35 cents, bringing full year dividend payout to 70 cents (no special dividend).

NPA likely to come off; single-digit loan growth 

  • As with its peers, management expects its NPAs to be lower than the level seen in 2016. 
  • Although there was an increase in its commodities and oil and gas exposure, from S$22.2b as of Sep 2016 to S$27.6b in Dec 2016, this was mainly to traders and downstream segment (which increased from S$8.4b to S$11.5b for the same period). Based on total outstanding loans, this sector accounted for about 8% of total loans. 
  • In terms of guidance, management is expecting mid-single digit loans growth in 2017 and NPL ratio to be stable at around the 1.5% to 1.6% region.

Maintain HOLD 

  • The focus appears to be on managing efficiency despite the uncertain external environment. 
  • Management shared that there is no significant weakness in the SME portfolio and that it has maintained its market share of new sales in housing loans. 
  • Banking stocks have enjoyed good re-rating in the past few months and we have rolled our valuation forward using FY17 estimates. As such, our fair value estimate moves up from S$S$18.78 to S$20.55. 
  • Maintain HOLD.

Carmen Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-02-17
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 20.55 Up 18.780