Towards Financial Freedom

UOB - FY13 Earnings Beat On Lower Tax Provisions

kiasutrader
Publish date: Mon, 17 Feb 2014, 11:30 AM
kiasutrader
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Following Message
UOB's  FY13  pretax  profit  rose  7%  y-o-y  on  robust  growth  in  NII,  fee income and associate profits.  We expect  FY14 net profit  growth to ease to  5%  y-o-y  on  slower  loan  growth,  but  this  will  be  sustained  by  fee income growth  and benign credit costs.  At an adjusted 1.2x P/BV (-1SD historical mean),  we believe  concerns over property cooling measures are priced in. Maintain BUY, with a SGD24.00 FV (from SGD24.50).
  • Underlying profits in line.  UOB's  net profit  of SGD773m  (+6% q-o-q; +11% y-o-y) for 4Q13 lifted its  FY13  earnings to  SGD3.01bn  (+7% y-oy).  This  is  above  our  (SGD2.80bn)  and  consensus  (SGD2.84bn) estimates,  due  to  a  low  effective  tax  rate  of  9% in  4Q13.  Pretax  profit (+7% y-o-y) was in line with our  forecast, supported by healthy growth in net  interest  income  (NII),  fee  income  and  higher  associate  profits (+119%  y-o-y  to  SGD191m  on  non-recurring  gains  from  sale  of investments).
  • Results  highlights.  FY13's  standouts  include:  i)  NII  grew  a  steady  5% y-o-y;  ii)  loans  growth  was  robust  and  broad-based  (+16.8%  y-o-y; +3.1% q-o-q); iii)  although net interest margin (NIM)  fell 15bps y-o-y  to 1.72%,  it had been stable  since 2Q13;  iv)  sustained fee income  growth (+15%  y-o-y)  was  led  by  the  fund  management  (+33%  y-o-y), investment-related  (+31%  y-o-y)  and  loan-related  (+14%  y-o-y)segments; and v)  asset quality  was healthy,  as absolute non-performing loans  (NPL)  contracted  12% y-o-y  while  the  NPL  ratio  dipped  to  1.1% (FY12: 1.5%). Loan loss coverage rose to 150.5% (FY12: 123.8%).
  • Management  guidance.  For  2014,  management  sees  loan  growth moderating to a high single digit as measures to cool the property sector have led to a c.35% drop in new mortgage approvals.  NIM is  likely  to be stable  as  short-term rates  are  expected to  stay flat.  We expect  benign credit cost,  as  asset quality  remains resilient, while fee income growth  is expected  sustain  at  double  digits  given  the  momentum  seen  in  the bank's  wealth  management  and  fee-based  businesses.  UOB  would actively tap USD deposits and commercial papers to diversify its funding base as loan-to-deposit ratio (LDR) has risen to 88.5% (Dec 2012: 84%).
  • Reiterate  BUY.  Post  housekeeping  for  FY13  results,  we  tweak  our FY14F  net  profit  forecast  slightly  to  SGD3.05bn  (from  SGD3.04bn). However,  we  revise  our  FV  to  SGD24.00  (from SGD24.50) after  minor adjustments  to  book  value.  Our  FV  pegs  the  stock  at  1.45  P/BV (unchanged) vs its historical mean of 1.4x P/BV. Maintain BUY.






Company Profile
UOB is the second largest Singapore bank by loan. It also has significant operations in Malaysia, Thailand and Indonesia.
Source: OSK
UOB (U11)
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