1Q14 results surpassed expectations on lower taxes.

Directionally, certain operating trends were weaker than that of DBS and OCBC, characterised by weaker NIM (-1bp QoQ) and weaker fee income (-4.8% QoQ, -8.6% YoY).

Maintain BUY with a SGD23.60 TP, based on 13x FY14E P/E.

Ahead of expectations on unusually low taxes

UOB’s 1Q14 core PATMI of SGD788m (+2.0% QoQ, +9.2% YoY) beat our and consensus estimates. The results were largely lifted by unusually low taxes from write-back of prior years’ taxes. Management expects this to normalise to the 18% region in the quarters ahead. In our view, UOB’s results were weaker compared to that of DBS and UOB in two key areas. First, unlike DBS/OCBC that saw a 5/6bps QoQ expansion in net interest margin (NIM), UOB’s inched down by 1bp to 1.73%. Second, while DBS and OCBC posted fee income growth on both QoQ and YoY basis, UOB’s declined 4.8% QoQ, or 8.6% YoY. UOB’s fee income was dragged down by loan-related (-10.8% QoQ, -24.0% YoY) and fund management fees (-18.7% QoQ, -39.1% YoY).

Taking a more conservative stance

Management’s prudence continued to shine through in this set of results. Notwithstanding strong asset quality, general provision (GP) ratio (expressed as a proportion of net loans) was raised to 1.36% (4Q13: 1.28%; 1Q13: 1.24%), which was much higher than DBS’s 0.96% and OCBC’s 0.88%. 1Q14 GP rose 148% QoQ and 36.5% YoY to SGD124m, offsetting a net write-back of SGD2m for specific allowances. Also, UOB kept its USD LDR low at 71% which was much lower than DBS’s 108% and OCBC’s 106%. Maintain our BUY on UOB and keep our earnings forecasts for now. Our SGD23.60 TP is based on 13x FY14E P/E.

Source: Maybank Kim Eng Research - 2 May 2014