United Overseas Bank - Phillip Securities 2020-02-24: Business As Usual

UNITED OVERSEAS BANK LTD (SGX:U11) | SGinvestors.io UNITED OVERSEAS BANK LTD (SGX:U11)

United Overseas Bank - Business As Usual

  • UOB (SGX:U11)'s 4Q19 revenue and PATMI were in line with estimates.
  • Net profit grew 10% y-o-y on stellar trading income almost quadrupling to $224mn from $59mn in 4Q18 while NII and fee income growing a modest 2% apiece y-o-y.
  • 4Q NIM fell 4bps y-o-y to 1.76% despite stable asset yield and funding costs a result of increased interest-bearing liabilities from growth of customer deposits y-o-y (+3% y-o-y).
  • Proposed final dividend of 75 cents; consisting of 55 cents core dividend and 20 cents of special dividend, bringing dividend for FY19 to $1.30 per share (+8% y-o-y). This brings dividend yield to c.5.0% based on current price.
  • Maintain ACCUMULATE with an unchanged target price of S$27.80. We hold FY20e stable after factoring headwinds in previous quarters.



Positives


4Q trading income quadrupled y-o-y.

  • With a recovery in market conditions, trading income leapfrogged on gains from investment securities and better customer-related flow income, buoying slower growth from NII and fee income, both of which grew +2% y-o-y. Slight increase in NII was a result of modest growth in loans of 3% y-o-y despite a NIM compression of 4 bps while fee income was held up by WM fees (+42% y-o-y), offsetting lower loan-related fees (-25% y-o-y).


Negatives


4Q CIR rose to 45.9% from 44.4% YoY.

  • IT-related expenses grew 36% y-o-y on continued investments in to grow connectivity in order to boost long-term efficiency among franchises. Staff-related costs grew in tandem with growth in income due to performance-related staff costs.
  • Moving forward, the bank aims keep CIR stable with a paced investment approach.

Allowances rose 14% YoY on impaired loans.

  • Asset quality remains benign with NPA growing a moderate 2% y-o-y due to a lower base in 4Q18. Credit costs rose 4 bps to 24 bps from a year ago but full year credit costs came in below expected range of 20-25 bps at 18 bps. NPL remains low at 1.5%, unchanged y-o-y.


Outlook


Active stance to de-risk North Asia exposure may insulate impact of short-term risks.

  • On expectations of greater headwinds arising from Greater China, the bank has been actively managing exposures to the region to reduce short-term risks. Total Greater China exposure stands at 15% of total assets, while potential vulnerable industries within Hong Kong making up $5bn or 8% of total Greater China exposure.
  • Majority of loan tenor are also below 1 year, and NPL ratio remains at respected levels of below 1%.

Sluggish growth from global uncertainty.

  • NIM compression will stunt NII growth in FY20e and non-interest income may also be dented from weaker market sentiments with outbreak of Covid-19 outbreak.


Investment Actions






Tay Wee Kuang Phillip Securities Research | https://www.stocksbnb.com/ 2020-02-24
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 27.800 SAME 27.800



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