United Overseas Bank 2Q19 - CGS-CIMB Research 2019-08-02: Loads Of Positive Surprises

UNITED OVERSEAS BANK LTD (SGX:U11)

United Overseas Bank 2Q19 - Loads Of Positive Surprises

UNITED OVERSEAS BANK (UOB, SGX:U11)’s 2Q19 net profit of S$1.17bn was 11% above our forecast of S$1.05bn and 12% above consensus' S$1.06bn. There were various positive surprises.
Net trading income was as strong in 2Q19 as in 1Q19, wealth management and credit cards saw mid-teens q-o-q growth, and credit cost was low at 8bp.
The bank topped it up with a S$0.55 DPS (1H18: S$0.50). Guidance for dividend was 50% payout (FY18: 51%). Maintain ADD and Target Price of S$29.58.

UOB’s 2Q19 net profit of S$1.17bn was 11% above our forecast of S$1.05bn and 12% above Bloomberg consensus' S$1.06bn.
1H19 formed 52% of our and 53% of Bloomberg consensus full-year forecasts.
After four quarters of NIM contraction, UOB delivered +2bp q-o-q of NIM to 1.81% in 2Q19. UOB has guided for flat FY19 NIM. Loans growth was in line at 1.1% q-o-q in 2Q19 (1Q19: +3% q-o-q).
2Q PPOP was at S$1.453bn (+9% q-o-q, +10% y-o-y). Total income rose 7.4% q-o-q.

Net trading income of S$245m (as strong as 1Q19's S$243m) was a good surprise. Wealth management of S$160m (+17.6% q-o-q) and credit card of S$121m (+14.2% q-o-q) segments lifted total fee and commission income by 10% q-o-q and 5.8% y-o-y.
Impairment provisions of S$51m in 2Q19 translated into credit costs of 8bp (1Q19: 14bp), thanks to write-back in allowances on non-impaired assets. We had projected 19bp for FY19F.

Regional q-o-q trend:
- Singapore NIM was up 4bp to 1.53% with +2% loan growth
- Malaysia NIM was down 4bp to 1.95% with a +1% loan growth
- Thailand NIM was down 15bp to 3.31% with -1% loan growth
- Indonesia NIM was down 24bp to 3.61% with -1% loan growth
- Greater China NIM up 7bp to 0.78% with -3% loan growth
LDR rose to 88.5% (1Q19: 86.6%) as the bank released a bit of liquidity built up over the past months. Total deposits shrank 1% as FD balances contracted 2% or S$3bn .
2Q19 non-II grew 13.6% q-o-q, 16.3% y-o-y on stronger trading income, wealth management fees and cards grew as stated above.
CTI held steady at 44.6% (1Q19: 44.6%).
CET-1 ratio stable q-o-q at 13.9% (1Q19: 13.9%).
ROE rose to 12.5% (1Q19: 11.4%, FY18: 11.3%). UOB targets to achieve 13% ROE by FY21 via its digital capabilities.

Maintain ADD, with a GGM-based Target Price of S$29.58 (implied P/BV of 1.3x, ROE: 11.5%).
We expect positive movement on its share price due to the strong 2Q19 results. UOB will be holding results briefing concall at 10.30am this morning.

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-08-02

SGX Stock Analyst Report ADD MAINTAIN ADD 29.580 SAME 29.580