United Overseas Bank - RHB Invest 2018-10-26: Q-o-q NII Up 4%, NIM Narrowed; BUY

UNITED OVERSEAS BANK LTD (SGX:U11)

United Overseas Bank - Q-o-q: NII Up 4%, NIM Narrowed; BUY

Maintain BUY with Target Price Under Review pending an analyst teleconference later today.
UOB’s 3Q18 results announced this morning were in line with expectations. Net profit of SGD1.04bn was up 17% y-o-y (-4% q-o-q), while 9M18’s earnings represented 74% and 76% of our and consensus full-year forecasts. Whilst 3Q18 NIM of 1.81% was 2bps narrower q-o-q, the growth trend is evident from the 2bps y-o-y widening. 3Q18 loan growth was a respectable 2% q-o-q.
Our current Target Price of SGD33.30 is derived from a long-term ROE assumption of 13%, slightly higher than 3Q18’s ROE of 11.7% (2Q18: 12.1%).

Highlights:
- 3Q18 up sharply y-o-y. Net profit stood at SGD1.04bn, down 4% q-o-q but up 17% y-o-y. The key driver to y-o-y earnings growth was NII, which rose 14% y-o-y;
- 3Q18 NIM of 1.81% was 2bps narrower q-o-q, but 2bps wider y-o-y. Whilst overall yields rose 7bps q-o-q to 3.31%, this was more than offset by the rise in deposit costs. However, a 2% q-o-q loan expansion was positive. The overall impact was positive, with NII rising 4% q-o-q and 14% y-o-y;
- Sequentially weak loan-related fees. 3Q18 fee and commission income fell 3% q-o-q, but was up 2% y-o-y – the q-o-q weakness was mainly due to loan-related fees falling 9% q-o-q. Net trading income fell SGD41m q-o-q (or 19%), which contributed to the q-o-q net profit weakness;
- 3Q18 total credit cost of 18bps was higher than 2Q18’s 13bps, but sharply lower than 3Q17’s 32bps;
- Potential for more future dividends. 3Q18 CET1 capital adequacy ratio (CAR) of 14.1% may be lower than 2Q18’s 14.5%, but is higher than its two peers’ 2Q18 average of 13.4% – this points to the potential for UOB to dish out more dividends going forward, although no dividend was declared for 3Q18.
Maintain BUY, but are reviewing our earnings forecasts and Target Price. More highlights will be unveiled after the analysts teleconference later today.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-10-26

SGX Stock Analyst Report BUY MAINTAIN BUY 33.300 REVIEW 33.300