UOB - OCBC Investment 2017-11-03: Record 3Q Earnings

UOB - OCBC Investment 2017-11-03: Record Quarterly Profits UNITED OVERSEAS BANK LTD U11.SI

UOB - Record Quarterly Profits

  • Strong 3Q17 performance.
  • Wealth and loans to drive growth.
  • Upped FV to S$25.36.

Record quarterly profits

  • UOB delivered its strongest quarterly earnings with 3Q17 net earnings of S$883m, up 12% YoY and 5% QoQ. This was above consensus of S$842m based on a Bloomberg poll. 
  • The outperformance came from broad-based improvement in both Net Interest and Non-interest Income. Fee Income enjoyed strong growth, up 12% YoY and 7% QoQ. From this, Wealth Management led with a 40% YoY jump in contribution to S$143m, while Fund Management rose 15% YoY and Credit Card improved 11%. 
  • Net Interest Margin improved from 1.69% in 3Q16 and 1.75% in 2Q17 to 1.79% in 3Q17. NPL ratio stayed stable at 1.6%.

Management is fairly positive 

  • While acknowledging that the operating environment is still uncertain, especially for the oil and gas sector, management is generally positive on its outlook. We note the positive decline in cost-to-income ratio from 45.4% in 9M16 to 44.7% in 9M17, reflecting prudent cost management. 
  • While allowances remained high at S$221m in 3Q17, management guided that of the S$3.7b total exposure to the oil and gas sector, it has already provided for adequate level of allowances. However, there is still one large account and provisions are likely to be done in 4Q17. 
  • The recent sale of its stake in Hengfeng Bank is a step to tap on its own active network to grow its China business.

Maintain HOLD; increasing FV to S$25.36 

  • Management is guiding for loans growth of 5-10% and for NIM to improve 1-2bp per quarter. We expect wealth (total AUM of S$100b) and loans to continue to drive its growth in the coming quarters. The stock has done well this year, up 21.5% YTD. 
  • With the recent strong re-rating in the banking sector and aided by the recent renewed interest in the residential property market, valuations have moved up substantially. 
  • We have raised our valuation peg to 1.1x FY18 book, increasing our fair value estimate from S$23.00 to S$25.36. Dividend yield is 2.8%. Maintain HOLD.

Carmen Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-11-03
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 25.36 Up 23.000