United Overseas Bank - CGS-CIMB Research 2019-11-01: 3Q19 Margin Pressure Setting In


United Overseas Bank - 3Q19 Margin Pressure Setting In

  • UOB’s 3Q19 net profit of S$1.12bn was 4%/10% above our/consensus S$1.07bn/S$1.02bn estimates. NII was stronger 2% q-o-q despite -4bp NIM.
  • The beat came mainly from stronger inv gains (+46% q-o-q) and credit card income (+4% q-o-q), offsetting the 21bp credit costs.
  • Maintain ADD with GGM-based Target Price of S$29.54 (implied 1.3x P/BV, 11.5% ROE). See UOB Share Price; UOB Target Price.

UOB’s 3Q19 stronger NII despite 4bp NIM compression

  • UNITED OVERSEAS BANK LTD (UOB, SGX:U11)’s 3Q19 net profit of S$1.12bn was 4%/10% above our/consensus S$1.07bn/S$1.02bn expectations. See UOB Announcements.
  • 9M19 net profit formed 77%/78% of our/consensus FY19 forecasts.
  • 3Q19 NII rose 2% q-o-q/5% y-o-y despite a 4bp q-o-q dip in NIMs while non-II was -1% q-o-q /+27% y-o-y due to strong wealth income and credit card fees.
  • Treasury income was weaker by 1% q-o-q as investment gains offset trading income weakness.
  • Loan growth was +0.8% q-o-q in 3Q19.
  • PPOP held steady (flat q-o-q/+11% y-o-y) as CTI was stable at 44% but net profit was 4% weaker q-o-q (+8% y-o-y) due to heftier 21bp credit costs.

Heftier credit costs and lower treasury income offset by wealth

  • UOB’s NIMs dipped 4bp q-o-q to 1.77% in 3Q19. This follows a short 2bp reprieve in 2Q19 after 4 quarters of margin compression over FY18.
  • NIM compression was broad-based across the region except for Greater China. The dip was mainly due to lower asset yields.
  • Heftier impairment provisions of S$145m translated into 21bp of credit costs (2Q19: 8bp). Most of the increase came from specific provisions – likely to be due to a previously classified real-estate-related NPL in the US.
  • Overall, the weakness above was supported by very strong wealth management income of S$180m (record high, +14% q-o-q/+38% y-o-y) and better-than-expected credit card income.

Other UOB 3Q19 highlights

  • Regional NIM trends:
    • Singapore NIM was down 4bp q-o-q at 1.49% with flattish net loan growth.
    • Malaysia NIM was down 2bp q-o-q at 1.93% with flattish net loan growth.
    • Thailand NIM was down 20bp q-o-q at 3.11% with +3% net loan growth.
    • Indonesia NIM was down 3bp q-o-q at 3.58% with +1% net loan growth.
    • Greater China NIM was up 10bp q-o-q at 0.88% with +5% net loan growth.
  • LDR was slightly higher at 89.3% as deposits contracted by 0.1% q-o-q (FDs contracted by 0.6% q-o-q). 3Q19 funding was largely in the form of deposits from banks.
  • CET-1 ratio: 13.7% (2Q19: 13.9%).
  • 3Q19 ROE: 11.8% (2Q19: 12.5%).

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-01
SGX Stock Analyst Report ADD MAINTAIN ADD 29.540 SAME 29.540