United Overseas Bank - OCBC Investment 2019-11-01: Solid Earnings, But NIMs Pressured

UNITED OVERSEAS BANK LTD (SGX:U11)

United Overseas Bank - Solid Earnings, But NIMs Pressured

UOB (SGX:U11)'s 9M19 earnings increased +8% from a year ago.
Total income grew +10% to a record high of SGD7.6bn, driven by broad-based loan growth, trading and investment income and steady fee income growth.
Compression in net interest margin -4bps q-o-q to 1.77%, while NPLs increased slightly +4% q-o-q. Loan growth (+1% q-o-q) was in line with macro environment.
No 3Q dividend as expected. See UOB Dividend History.

Total income grew 10% to record high of SGD7.6bn, driven by broad-based loan growth, trading and investment income and steady fee income growth. ROE of 11.9% improved from 11.6% a year ago.
Net interest income grew 7% as gross loans gained 8% y-o-y. Net interest margin contracted 4bps q-o-q (decline in SEA markets q-o-q, except for Greater China).
Net fee and commission income growth of 4% to SGD1.56bn was driven by strong wealth management flows, improved loan and credit card fees but offset partially by lower fund management fees.
Cost income ratio increased slightly to 44.2% as total expenses gained 11% to SGD3.36bn with continued investments in talent and technology to provide personalized experiences and solutions for customers.
Non performing loan ratio was stable at 1.5% as of end Sept 2019. Allowances were increased to SGD289mn. Credit costs on impaired loans for 9M gained slightly by 3pbs to 15bps.
See UOB Announcements.

3Q net profit was driven by net income growth of 5% to SGD1.69bn and loan growth (+8% y-o-y, +1% q-o-q). Total allowances were raised 53% from a year ago to SGD145mn in 3Q, to provide higher provisions for impaired assets.

Balance sheet and capital position remains strong, with stable funding position and all-currency liquidity coverage ratio of 144%. Loan deposit ratio remained healthy at 89.3%.
As of end September, UOB’s common equity tier 1 ratio and leverage ratio of 13.7% and 7.6% respectively were well above regulatory required levels.

With the lower interest rate environment and net interest margin expected, our broad sector view remains neutral. While business sentiment is expected to remain weighed down by concerns over global economic headwinds, management believes it is well positioned via its regional footprint to benefit from continued investment flows as businesses diversify supply chains amidst trade tensions.
Newly opened branches in Hanoi, Vietnam and Zhongshan, China are expected to add to the extended connectivity for customers across Southeast Asia and China.
See UOB Share Price; UOB Target Price.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-11-01

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