UOB posted 2Q16 net earnings of S$801m, +5.1% YoY and +4.6% QoQ, and marginally ahead of market estimate of S$798m. This was largely driven by higher Non-interest Income, which rose 13.9% YoY and 17.0% QoQ to S$813m. The biggest contributor is higher Net trading Income which doubled from a year ago to S$216m due to higher trading gains.

Net Interest Margin (NIM) eased from 1.77% in 2Q15 and 1.78% in 1Q16 to 1.68% in 2Q16. NPL ratio stayed stable for three quarters at 1.4%. Its exposure to China remained flat from last quarter at around S$19.5b.

Total exposure to commodities (including oil and gas) grew from S$21.8b last quarter to S$22.8m this quarter or 7.5% of total loans. Total exposure to Europe is S$7.7b or 2.4% of total assets.

An interim dividend of 35 cents has been declared and the scrip dividend scheme will apply to the interim dividend. We will review our fair value estimate and rating after the analysts’ briefing later this morning. Do note that prior to the results, our rating on the stock was a HOLD.

Source: OCBC Research - 28 Jul 2016