United Overseas Bank 2Q19 - Loads of Positive Surprises

Date: 02/08/2019

Source  :  CIMB
Stock  :  UOB       Price Target  :  29.58      |      Price Call  :  BUY
        Last Price  :  20.08      |      Upside/Downside  :  +9.50 (47.31%)

  • 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.

Good Sets of Results

  • 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, Fee Income and Credit Costs Surprised Us

  • 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.

2Q19: Other Results Highlights

  • 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

  • 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.

Source: CGS-CIMB Research - 2 Aug 2019

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