OB reported  4Q12  net  profit  of  SGD696m,  up  25%  y-o-y.  This  is  stronger than  ourSGD605m  and  consensus  SGD614m  forecast,  primarily  due  to  lower-than-expected taxes  driven  by  finalization  of  taxes  for  2003/2004.    Though  NIM  is  expected  to remain  compressed  in  1H13,  we  remain  bullish  on  UOB  as  its  larger  loan  share  to Singapore  housing  mortgage  (versus  peers),  and  growth  in  overseas  loan,  should lead to wider NIMs with a lag of a few quarters.  We maintain our earnings forecast. UOB trades at ~1.2x P/B, which is sharply lower than the historical average of 1.57x. Maintain  BUY  recommendation  with  a  higher target  price  of  SGD22.60,  pegged  to  a raised 1.45x 2013 book. 

Unexciting  net  interest  income,  but  loans  grew  respectably.  Net  interest  income contracted  0.5%  q-o-q.  This  was  attributed  to  NIM  squeeze  of  8bps  q-o-q  to  1.76%,  and partly  offsetted  by  loan  expanding  2.3%  q-o-q.    Driving  loan  growth  was  housing  loans, which  expanded  4.1%  q-o-q  and  accounted  for  30%  loan share.    Management guided  for continued 1H13 NIM squeeze and 2013 loan growth of high single-digit. We forecast FY13 loan growth of 8%, and NIM of 1.91%, marginally wider than FY12's 1.87%.
 
Mild expansion for fee & commission income.  Non-interest income contracted 9.7% q-o-q.    Fee  &  commission  income  rose  4.1% q-o-q,  and  accounted  for  62%  of  non-interest income.  The star performer was fund management, which recorded a 41.9% q-o-q surge.  On the other hand, trading and investment income fell 14.9% q-o-q on lower gain from sale of securities.  Management targets to further build on its wealth management franchise by increasing AUM and increasing the number of wealth management centres. 

Asset quality remains good, with NPL ratio of 1.5%, marginally lower than Sep 12's 1.6%. FY12  individual  impairment  on  loans  of  SGD454m  was  essentially  for  a  specific  account outside of Singapore.   Management sees no systemic weakness in asset quality. 

Special dividend of SGD0.10 declared. A special  dividend of SGD0.10 was declared, in addition to a final dividend of SGD0.40. Total FY12 dividend of SGD0.70 (versus FY11's SGD0.60) represents a 39% payout ratio and a respectable 3.6% yield.

Source: OSK