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


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%).

United Overseas Bank released its 3Q18 results this morning.

  • 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