UOB announced 2Q18 net earnings of S$1077m this morning, +28% YoY and +10% QoQ. This is better than the street’s estimate of S$976m. The outperformance came from a strong improvement in Net Interest Income which rose 14% YoY and 5% QoQ.

In addition, Non-interest Income also grew 5% QoQ to S$800m. Allowances fell 50% YoY, but were up 14% QoQ to S$90m. Net Interest Margin (NIM) eased off slightly from 1.84% in the previous quarter to 1.83% this quarter, but this is still an increase over 1.75% in 2Q17. Cost-to-income ratio improved from 44.2% in 1Q18 to 43.6% in 2Q18.

Management has declared an interim dividend of 50 cents (versus 35 cents in 2Q17), and this is payable on 28 Aug 2018. Together with the 2Q results, UOB also announced that it is launching its Digital Bank which aims to build a customer base of 3-5m in the next 5 years operating at a steady state cost-to-income ratio of 35%.

We will provide more details after the analysts’ briefing later this morning. We have a BUY on UOB, but will look to re-visit our earnings estimates later.

Source: OCBC Research - 3 Aug 2018