• Maintain BUY with unchanged GGM-derived Target Price of SGD29.50, 10% upside plus 5% yield, based on 1.26x 2020F P/BV. Our long-term ROE assumption is 12.7% vs 9M19’s 11.9%, which factors in growing non-interest income offset by narrowing NIM ahead.
• UOB (SGX:U11)'s 9M19 net profit rose 8% y-o-y to SGD3,338m, representing 77% of our pre-results FY19 forecast.
• UOB remains our Top Pick among Singapore banks. This report is an update post analyst teleconference.

Strong Y-o-y Improvement for 3Q19 Other Non-interest Income

• UOB's 3Q19 net profit rose 8% y-o-y but fell 4% q-o-q. The y-o-y improvement was partly due to net gain from investment securities, and to wealth management fees (assets under management were up 10% y-o-y). See UOB Announcements; UOB Latest News.
• We raised our 2019F overall net profit by 1%.

Management Guided 2020 NIM to be 5-10 Bps Narrower Y-o-y

• UOB's 3Q19 NIM of 1.77% was 4bps narrower both q-o-q and y-o-y. The decrease was due to lower benchmark interest rates and short term placement in the securities market. Management is hopeful of maintaining current NIM in 4Q19. We forecast 2019 NIM of 1.79% vs 9M19’s 1.79%. Management guided for 2020 NIM to be 5-10 bps narrower y-o-y, based on end-2020 3-month SIBOR of 1.4-1.5%, and UOB’s intention to push hard to grow its CASA (to lower cost of funds). We forecast 2020 NIM of 1.73%.
• Management guided 2020 loan growth of mid single-digits. This is weaker than 3Q19’s y-o-y loan expansion of 8%. We forecast 2020 loan expansion of 4.5%.
• Management guided for 2019 CIR of 44%. 3Q19 CIR was 44.2%, higher q-o-q as UOB continued to invest in talent and technology. 3Q19 IT-related costs (11% share of total costs) were up 17% y-o-y.

UOB Currently Offers a FY19F Yield of 5%

• UOB currently offers a FY19F yield of 5% – sharply higher than the 10-year Singapore Government Bond yield of 1.78%. See UOB Dividend History.
• The current 2020F P/BV of 1.13x is also lower than the 6-year average of 1.22x. Based on our current estimates, we have a target 2020F P/BV of 1.24x.

Target Price Based on GGM-derived 1.26x 2020F P/BV

• 3Q19’s ROE of 11.8% was higher than 2018's 11.3%. Our valuation for UOB is based on a long-term ROE assumption of 12.7%. This yields a 2020F target P/BV of 1.26x, from which we derive our Target Price of SGD29.50.
• UOB is attractive as its current 2020F P/BV of 115x is also lower than the 6-year average of 1.22x.

Source: RHB Invest Research - 1 Nov 2019