Within expectations, but a weak end to the year with 4Q12 pretax profit down 15% QoQ, while net profit was flat (-2% QoQ). Positively though, FY12 net profit grew 21% YoY. Our forecasts are little changed but we do expect earnings to be relatively flat this year on the back of lower trading income and NIM compression. We see little catalyst at this stage and expect ROEs to settle back down at about 11.5% from 12.5% in FY12. Our SELL call is maintained with a marginally raised TP of SGD17.30 (2013 P/BV of 1.1x).

4Q12 pretax profit declined 15% QoQ as NIMs compressed further (- 8 bps QoQ), while operating expenses were seasonally higher and credit costs picked up led by provisions against a specific OECD NPL. Overall net profit was bolstered by a lower tax rate during the quarter.

Positively, FY12 fee income growth has been healthy (+14% YoY) led by fund management and investment-related income, while trading income was strong. There is risk of volatility on this front, however, given that trading income was led substantially by investment gains, which accounted for 22% of non-interest income in FY12 vs 15% in FY11, and may not be repeated. Also positive is the group’s liquid balance sheet (LDR of 84%, USD LDR of just 82%).

Loan growth was 8.3% YoY and management guides for high-single digit growth for FY13. NIMs, however, remain under pressure and UOB’s NIMs have compressed more than its peers’. Expectations are for this to continue in the near term. Positively, funding cost competition appears to have eased and as the bank pushes for growth outside of Singapore, there is a positive impact to yields. However, the ongoing mortgage book replacement will continue to bear down on NIMs and UOB has been the largest player among the local banks in this market.

Special DPS of SGD0.10 in 2012 and a final DPS of SGD0.40, take the full year DPS to SGD0.70, a payout ratio of 39%. This translates to a decent yield of 3.6% at current price.

Source: Maybank Kim Eng Research - 28 Feb 2013