United Overseas Bank 3Q19 - UOB Kay Hian 2019-11-04: TMRW Making Its Mark


United Overseas Bank 3Q19 - TMRW Making Its Mark

  • UOB's 3Q19 results were above consensus estimate with loan growth of 7.8% y-o-y, stellar performance from wealth management and strong net trading income.
  • Baht-denominated deposits grew 24.3% y-o-y and 11.1% q-o-q, indicating positive impact from the launch of digital bank TMRW in Mar 19.
  • Management has guided for mid-single digit loan growth, NIM compression of 5-10bp, mid single-digit fee growth and credit costs of 20-25bp for 2020.


Loan and deposit growth driven by Thailand.

  • Loans expanded 7.8% y-o-y and 0.8% q-o-q in 3Q19. Thailand and Greater China generated strong loan growth of 16.4% and 15.4% y-o-y respectively. Baht-denominated deposits grew 24.3% y-o-y and 11.1% q-o-q, potentially boosted by on-boarding of customers for digital bank TMRW that was launched in Mar 19.
  • NIM compressed 4bp on both y-o-y and q-o-q basis to 1.77% in 3Q19 due to lower interest rates and competitive pricing. NIM for Thailand compressed by a severe 20bp q-o-q to 3.11%. Net interest income grew 5.4% y-o-y, aided by strength in loan growth.

Wealth management firing on all cylinders.

  • Fees increased 14% y-o-y, driven by wealth management’s 38% y-o-y growth. UOB achieved strong sales for unit trusts, bancassurance products and foreign exchange transactions. AUM expanded 10% y-o-y to S$122b. Credit cards and loan-related fees also expanded by a respectable 14% and 13% y-o-y respectively.
  • Net trading income was strong at S$212m, up 21% y-o-y, driven mainly by customer flows. UOB also recognised gains on investment securities of S$98m.

Cost-to-income ratio healthy at 44.2%.

  • Operating expenses increased 14% y-o-y, driven by revenue-related expenses +21% y-o-y and IT expenses +17% y-o-y. UOB continues to invest in technology to serve customers with more personalised experience and to improve productivity. Headcount has increased 4% y-o-y to 26,941.

Asset quality remains stable.

  • NPL formation for wholesale banking and SMEs moderated to S$180m (2Q19: S$357m) or 26bp (2Q19: 53bp). NPL ratio edged slightly higher by 4bp to 1.52%. Specific provisions doubled y-o-y to S$149m due to new NPLs, primarily a few small accounts in Singapore and Malaysia. Credit costs was 21bp, compared with 11bp in 1H19.


  • UOB has maintained growth momentum across various revenue streams despite the global economic slowdown. It will continue to grow its franchise selectively as balance sheet is healthy with robust capital and liquidity position and stable asset quality.

Benefitting from cross-border flows.

  • UOB is well positioned to capture cross-border investment and trade flows as businesses diversify their supply chain to Southeast Asia due to its extensive regional network. It continues to strengthen its regional network with newly-opened branches in Hanoi, Vietnam and Zhongshan, China.

Guidance for 2020.

  • Management expects loan growth to moderate from high single-digit to mid single-digit for 2020. In particular, loan growth for Singapore will be reduced from 8% to 5%. Management expected 3-month SIBOR to fall further by 30-50bp to 1.4-1.5% by end- 2020. NIM is expected to compress by 5-10bp in 2020. Fee income is also expected to increase by mid single-digit.
  • Management envisages slower economic growth in 2020 (not a full blown crisis). Thus, general provisions are expected to increase, although special provisions is likely to be maintained at the same level as 2019. Management guided credit costs at 20-25bp.

Asset quality for Hong Kong holding up.

  • UOB engages primarily in wholesale banking in Hong Kong. It does not have exposure to consumer banking nor SMEs. Real estate loans to developers and property funds in Hong Kong accounted for S$12b or 4% of group’s total loans. These loans are well collateralised with average LTV ratio at 40%. Also, 50% of its loans has tenor of less than one year. NPL ratio is low at 0.2%.
  • See UOB Share Price; UOB Target Price; UOB Analyst Reports.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-11-04
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000