United Overseas Bank Limited: Stellar performance across all segments February 21, 2018

PSR Recommendation: BUYStatus: UpgradedTarget Price: SGD29.00
  • 4Q17 PATMI of S$855mn is in line with our estimate.
  • NII increased 15% YoY on the back of robust loans growth and higher NIM.
  • WM fee income grew 29% YoY on higher contribution by HNW segment.
  • Higher specific provisions were offset by reversal of excess general provisions.
  • Upgrade to BUY (previously ACCUMULATE) with a higher target price of S$29.00 (previous TP S$25.22) based on Gordon Growth Model.

1

The Positives

+ 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.

The Negatives

– 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.

Outlook

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

2

Investment Actions

Upgrade to BUY (previously ACCUMULATE) with a higher target price of S$29.00 (previous TP S$25.22).

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About the author

Profile photo of Jeremy Teong

Jeremy Teong
Investment Analyst
Phillip Securities Research Pte Ltd

Jeremy covers primarily the Banking and Finance sector. He has 6 years’ experience in equities related dealing and research roles.

He graduated with Bachelors of Mechanical Engineering from Nanyang Technological University.

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