United Overseas Bank Limited - Phillip Securities 2018-02-21: Stellar Performance Across All Segments

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UNITED OVERSEAS BANK LTD U11.SI

United Overseas Bank Limited - Stellar Performance Across All Segments

• United Overseas Bank (UOB)'s 4Q17 PATMI of S$855mn is in line with our estimate.
• NII increased 15% y-o-y on the back of robust loans growth and higher NIM.
• WM fee income grew 29% y-o-y on higher contribution by HNW segment.
• Higher specific provisions were offset by reversal of excess general provisions.
• Upgrade to BUY (previously ACCUMULATE) with a higher target price of S$29.00 (previous Target Price S$25.22) based on Gordon Growth Model.

The Positives

+ Loans growth 5% y-o-y and NIM expanded 12bps y-o-y. 

• Manufacturing and Financial institution loans registered strong double digit loans growth y-o-y. Housing loans growth was steady at c.6% y-o-y. NIM was higher on the back of higher rates on customer loans and interbank balances.

+ WM fees grew 29% y-o-y. 

• We believe the stronger fee income was due to stronger contribution by the HNW segment. Total WM income from the HNW segment saw a full year growth of 35% in 2017 compared with the mass affluent segment which grew 12%.

+ Exposure to upstream O&G sector reduced and portfolio cleaned up. 

• Exposure to upstream O&G sector was reduced to S$3.8bn in 4Q17 from S$4.3bn in 3Q17. New NPA formation spiked to S$1.2bn in 4Q17 compared to S$0.8bn in 3Q17 as more O&G exposure was cleaned up. As a result, NPL ratio increased to 1.8% compared to 1.6% in 3Q17. 
• Higher specific provision expense during the quarter was offset by a reversal of excess general provisions which resulted in a low provision expense of S$140mn in the 4th quarter.

The Negatives

- UOB Indonesia continues to be loss making in 4Q17. 

• UOB Indonesia’s weak top-line growth continues to be a drag as expenses continue to rise and allowances stay elevated.
• Recall in 3Q17, the higher allowance was needed to conform to regulatory changes in classification of non-performing loans.

Outlook

• We upgrade our FY18e NIM target to 1.9% from previous estimate of 1.81% but we maintain loans growth at c.6%. With a higher NIM outlook, we revise our FY18e PATMI growth estimate to c.13% (previously c.10%).

Investment Actions 

• Upgrade to BUY (previously ACCUMULATE) with a higher target price of S$29.00 (previous Target Price S$25.22).

Jeremy Teong Phillip Securities | https://www.stocksbnb.com/ 2018-02-21

Phillip Securities SGX Stock Analyst Report BUY Upgrade ACCUMULATE 29.00 Up 25.220