UOB - OCBC Investment 2017-04-28: 1Q17 Beats Consensus

UOB - OCBC Investment 2017-04-28: Good Set of 1Q17 UNITED OVERSEAS BANK LTD U11.SI

UOB - Good Set of 1Q17

  • Net earnings of S$807m.
  • Prudent cost management.
  • Raised FV to S$21.66.

Good Set of 1Q17

  • UOB’s 1Q17 net earnings came in at S$807m, up 5.4% YoY or 9.3% QoQ, and higher than market expectations of S$757m as polled by Bloomberg. 
  • UOB saw higher Net Interest Income as well as Non-interest Income, up 2.2% QoQ and 8.8% QoQ, respectively. For Non-interest Income, improvement was largely from the sharp increase in Net trading income, up 59% YoY and 55% QoQ, to S$261m.
  • Allowances remained elevated at S$186m this quarter versus S$131m last quarter and S$117m in 1Q16. 
  • NPL ratio remained stable from last quarter at 1.5%, and down from the recent peak of 1.6% in 3Q16.
  • Overall, the 1Q17 results showed good across-the-board improvements from the previous quarter.

Reduced exposure to O&G and continued cost management 

  • In terms of its exposure to the oil and gas sector, the exposure to the upstream industries (which includes the offshore service companies) has come off from S$5.3b as at 31 Dec 2016 to S$4.6b as at end March 2017. 
  • In terms of cost management, the cost-income ratio has stabilized at around 45% for this quarter. 
  • New NPLs came mainly from general commerce (including oil and gas industries) and rose S$62m from last quarter to S$513m this quarter. This increase accounted for 87% of the total increase in new NPLs for the quarter.

Increase FV to S$21.66; maintain HOLD 

  • We believe that the worst from the oil and gas appears to be over, even though the operating environment could remain tough. Specific Allowances have come off and should start to normalize soon.
  • Management guided that last quarter’s high tax rate is likely to come off and that they will continue to invest in IT but will be watching staff costs. 
  • In addition, they expect wealth momentum to continue to be supported by more products. 
  • With the overall improving market outlook and higher valuation for its peers, we have also raised our valuation peg and our fair value increases from S$20.55 to S$21.66.
  • Yield is at 3.3%. Maintain HOLD.

Carmen Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-04-28
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 21.66 Up 20.550