United Overseas Bank - UOB Kay Hian 2019-02-25: 4Q18 Weakness In Non-Interest Income; Launching TMRW In Thailand


United Overseas Bank - 4Q18: Weakness In Non-Interest Income; Launching TMRW In Thailand

  • Net interest income grew 10.1% y-o-y, powered by loan growth of 10.9% y-o-y. However, non-interest income floundered due to volatilities in financial markets.
  • Fees from wealth management dropped 19.7% y-o-y. UOB also incurred a loss of S$59m from investment securities.
  • Management guided for mid-single-digit loan growth in 2019.
  • UOB will launch TMRW, its mobile-only digital bank, in Thailand.


Broad-based loan growth tapping regional flows.

  • Loans expanded 10.9% y-o-y and 2.6% q-o-q. y-o-y expansion in loans was driven by Thailand (+12.3% y-o-y) and Greater China (+24.1% y-o-y).
  • Cross-border revenue tapping on China/ASEAN flows grew 15% and accounted for 25% of income from Group Wholesale Banking.

NIM suffers drag from overseas operations.

  • NIM narrowed marginally by 1bp on both a y-o-y and q-o-q basis. Higher cost of deposits kept NIM from Singapore flat q-o-q. NIM for Thailand and Indonesia recovered by 7bp and 25bp q-o-q respectively. However, NIM for Greater China deteriorated by 11bp q-o-q.

Wealth management suffered due to poor market sentiment.

  • Fees and commissions dropped 8.3% y-o-y and 3.5% q-o-q. Contribution from wealth management suffered drops of 19.7% y-o-y and 14.3% q-o-q due to poor investment sentiment.
  • Fund management and loan-related fees also declined 10.4% and 7.7% y-o-y respectively.

Decline in non-interest income.

  • Net trading income declined 36.6% y-o-y and 32.2% q-o-q to S$118m.
  • UOB incurred losses from investment securities of S$59m due to unrealised mark-to-market arising from market volatilities.

Maintaining cost efficiency.

  • Expenses declined 4.1% y-o-y due to lower revenue-related expenses (-10% y-o-y) and staff costs (-1.8% y-o-y).

Uptick in NPL formation.

  • NPL balance declined 4.6% q-o-q. NPL formation has increased to 94bp (3Q18: 75bp) but UOB has also stepped up in write-offs of 67bp (3Q18: 17bp). NPL ratio improved 11bp q-o-q to 1.53%. Provisions increased 34.7% q-o-q (credit costs: 33bp) due to NPLs in Singapore and Indonesia.
  • UOB declared final dividend of 50 S cents and special dividend of 20 S cents, totalling 70 S cents (+7.7% y-o-y). Total dividends of S$1.20/share represents a payout ratio of 51%.


  • UOB will stay disciplined in pursuing sustainable growth as global uncertainties persist. It will maintain a risk-focused approach while equipping its people for the future.

Guidance for 2019.

  • Management guided for mid-single-digit loan growth in 2019. NIM is expected to maintain at about 1.82bp, with some potential upside. UOB will benefit from anticipated hikes in mortgage rates in 1Q19. Fees should grow by mid-single-digits.
  • Management expects CIR to be stable at 44% and guided for credit costs of 20-25bp.
  • UOB targets to achieve ROE of 12% for 2019.

Management expects a long pause

  • before the FED hike interest rate once in 2H19. The outlook on interest rates is dependent on how the trade conflict between the US and China evolves. However, economic growth has generally slowed across the globe.

Launching digital bank in Thailand.

  • UOB will launch TMRW, its mobile-only digital bank, in Thailand. TWRW is developed in-house. UOB also leverages on fintech partnerships with Personetics and Meniga to learn in real time how to deepen customer engagement.
  • TMRW is targeted at meeting the needs of the new generation of millennials in ASEAN. It provides simple and engaging user experiences and delivers seamless omni-channel experiences. TMRW translates transaction data into actionable insights, enabling customers to be smarter at savings and spending.
  • UOB targets 3-5m customers for TMRW in five markets over the next five years.

Renews bancassurance partnership with Prudential.

  • UOB has renewed its strategic regional bancassurance partnership with Prudential for another 15 years. It will distribute PRUDENTIAL PLC (SGX:K6S)’s life insurance products to its consumer banking customer base in Singapore, Malaysia, Thailand, Indonesia and Vietnam.
  • The partnership leverages on UOB’s omni-channel network to offer protection and wealth solutions, including a digital initiative to be launched in 2020. The upfront fee of S$1,150m would be accrued over the life of the partnership starting 1Q20. Prudential has sweetened the deal by adding performance incentives, which was not available for the initial 10-year deal.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-02-25
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000