+ Loans growth 5% YoY and NIM expanded 12bps YoY. Manufacturing and Financial institution loans registered strong double digit loans growth YoY. Housing loans growth was steady at c.6% YoY. NIM was higher on the back of higher rates on customer loans and interbank balances.
+ WM fees grew 29% YoY. We believe the stronger fee income was due to stronger contribution by the HNW segment. Total WM income from the HNW segment saw a full year growth of 35% in 2017 compared with the mass affluent segment which grew 12%.
+ Exposure to upstream O&G sector reduced and portfolio cleaned up. Exposure to upstream O&G sector was reduced to S$3.8bn in 4Q17 from S$4.3bn in 3Q17. New NPA formation spiked to S$1.2bn in 4Q17 compared to S$0.8bn in 3Q17 as more O&G exposure was cleaned up. As a result, NPL ratio increased to 1.8% compared to 1.6% in 3Q17. Higher specific provision expense during the quarter was offset by a reversal of excess general provisions which resulted in a low provision expense of S$140mn in the 4th quarter.
– UOB Indonesia continues to be loss-making in 4Q17. UOB Indonesia’s weak top-line growth continues to be a drag as expenses continue to rise and allowances stay elevated. Recall in 3Q17, the higher allowance was needed to conform to regulatory changes in classification of non-performing loans.
We upgrade our FY18e NIM target to 1.9% from previous estimate of 1.81% but we maintain loans growth at c.6%. With a higher NIM outlook, we revise our FY18e PATMI growth estimate to c.13% (previously c.10%).
Valuation: Gordon Growth Model
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