United Overseas Bank - CGS-CIMB Research 2019-05-03: 1Q19 Income Growth With A Price


United Overseas Bank - 1Q19: Income Growth With A Price

  • UNITED OVERSEAS BANK LTD (SGX:U11)’s 1Q19 net profit was slightly above expectations, mainly due to strong 3% loan growth and market-related income. NIM compressed 1bp q-o-q to 1.79%.
  • Net trading income more than doubled q-o-q to S$243m vs. the S$154m we expected. Wealth jumped 19% q-o-q to S$136m.
  • Maintain ADD call and our GGM-based Target Price of S$29.00.

UOB's 1Q19 earnings boosted by strong trading and wealth income

  • UNITED OVERSEAS BANK LTD (SGX:U11)’s 1Q19 net profit of S$1.05bn was 1% above our expected S$1.04bn and 5% above consensus’s expected S$1bn. 1Q19 net profit formed 25% of our and consensus full-year forecasts.
  • Market-related income rebounded strongly; net trading income more than doubled to S$243m (vs. S$154m in 4Q18) while wealth management fees jumped 19% q-o-q to S$136m, the levels seen in 2Q/3Q18.
  • Credit costs of 19bp were broadly in line with our expected 20bp. The 13bp of specific provisions for impaired loans was slightly lower than the average 14bp in FY18.

NIM contracted for fourth consecutive quarter, by 1bp to 1.79%

  • UOB’s 1Q19 NIM narrowed 1bp to 1.79%. This is the fourth consecutive quarter of contraction from 1.84% in 1Q18. Management guidance was for NIM to be stable with potential upside; FY18 NIM was 1.82%.
  • Although the 12bp rise in customer loan yields was higher than the 11bp increase in customer deposit costs, NIM expansion was ultimately contained by strong 5% q-o-q deposit growth (mainly S$ and US$ FDs), which offset the 3% q-o-q loan growth.
  • Loan growth was strong at 3% q-o-q, firmly on track towards the bank’s mid-single-digit full-year expectations. The growth largely stemmed from Singapore and Greater China.
  • LDR was lower at 86.6% in 1Q19 vs. 88.2% in 4Q18.

Total income up 8.6% q-o-q

  • Total income rose 8.6% while costs increased 9%; CTI was broadly stable at 44.6% (4Q18: 44.4%).

Higher ROE of 11.4%; CET-1 held steady at 13.9%

  • ROE increased to 11.4% in 1Q19 (4Q18: 10.2%, FY18: 11.3%).
  • CET-1 was stable at 13.9%, although this may trend lower post dividend payout.
  • See attached PDF report for detailed quarterly earnings statistics.
  • A potential re-rating catalyst is a substantial pick-up in NIMs. Downside risks include a Fed rate cut.

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-05-03
SGX Stock Analyst Report ADD MAINTAIN ADD 29.000 SAME 29.000