Above-expectation earnings, with YoY expansion in net interest income and fees & commissions.   UOB reported 3Q12 net profit of S$707m, up 36% YoY, and above consensus expectations of S$658m. The outperformance is attributed to stronger income from financial instruments at fair value, and provisions coming in lower than our forecast. Nonetheless, we rate this a good set of results, on the back  of  a  6%  YoY  rise  in  net  interest  income  and  YoY  strength  in  fee  and commission  income.  3Q12  ROE  of  12.1%  is  also  respectable.  We  raise  our 2012F  net  profit  by  9%,  largely  to  factor  in  the  3Q12  outperformance  and  lower 4Q12  provisioning.  We  see  UOB  capitalising  on  its  regional  platform  to  grow earnings.  The  results  should  allay  concerns  that  probably  led  to  UOB's  share price  underperformance  over  the  past  one  month.  Post  results,  we  raised  our target price to S$21.60 as we roll over to 2013 financials (pegged to 1.43x 2013 book, a discount to the historical average of 1.57x).  Maintain BUY.

Loan  expansion  stronger  from  regional  segment.  Net  interest  income  rose 6%  YoY,  driven  by  a  8.6%  YoY  loan  expansion,  and  offset  by  a  5  bps  YoY squeeze  in  NIM  to  1.84%.  UOB  recorded  a  sequential  loan  expansion  of  1.8%, ahead of DBS' 1% contraction.  A 3% QoQ growth in UOB's housing loan reflects UOB's continued focus on this  low-risk  space. On a YoY basis,  regional  country
loans  expanded  11%,  outpacing  that  for  Singapore.  We  forecast  2012  loan growth  of  8.5%  and  NIM  of  1.90%. We  expect  housing  loan  growth  to  remain  a feature over the next few quarters as drawdown of approved loans take place.

The cost-income ratio of 41.3% is similar to that for 2Q12. NPL ratio rose 0.2 ppt QoQ to 1.6%, and UOB attributed this to a particular overseas loan, which is still paying  but  of  which  UOB  is  concerned  with  the  cash  flow.    We  do  not  see  this NPL rise as a concern.

 Source: OSK