• 1Q15 NPAT of S$801m grew +2% q-q, forming 24%/25% of consensus/PSR FY15 est.
• Loans growth and NII growth were encouraging, NIM surge was a pleasant surprise but this should trend down slightly in 2Q15
• Fees and commissions q-q growth is flat but WM fee improvement is a positive
• Management tone is positive on Singapore but remains cautious on some regional exposures
• Maintain "ACCUMULATE” with a revised TP of S$26.00. We remain positive on their disciplined business approach in cost management and focus on liquidity management. Better than expected NIM improvement is a positive, funding cost remains a near-term risk

How do we view this?

NIM surge of 7bps was a surprise but NII in line with PSR expectations. We saw encouraging broad-based loans growth of +2% q-q, largely in line with PSR estimates. Customer loans grew +2% q-q, driven by USD deposits (+19% q-q). USD LDR has drifted to 58.0% (4Q14: 70.2%).

Average yields on customer loans improved by 11bps q-q as the repricing effect from increased domestic rates are being felt. Overall funding cost is stable and we saw a consequential surge in NIM.

NIM is expected to trend down slightly by 1-2bps from this level. We adjusted our FY15E NIM up slightly by +3bps and NII (net interest income) by +2%. Funding cost remains a near-term risk but we like that UOB actively looks for the lowest cost of funding and we think their disciplined business approach will allow them to reprice fast enough. FY15 loans growth guidance at lower range of 5-10% and stronger NII in future quarters.

Fees and commissions flat, non-interest income provided some lift. Overall fee income was flat q-q as +24%/8% growth in WM (wealth management)/credit card offset declines in the rest. Similar to its peers, net trading income (+29%) provided some lift. Management continues to put focus on its wealth management business.

Asset quality still robust. NPL ratio remained unchanged q-q at 1.2%. A pickup in shipping and Indonesia NPLs were due to a few large accounts. Management remains prudent on this front and putting in enough provisions.

Investment Actions

Maintain "ACCUMULATE” with a revised TP of S$26.00 as we tweak FY15E EPS by +2%. We are positive on their disciplined business approach in cost management and focus on liquidity management.

Source: Phillip Securities Research - 4 May 2015