SINGAPORE (Feb 15): UOB on Wednesday announced its 4Q17 results, posting a 16% increase in earnings to $855 million. This brings FY17 earnings to $3.39 billion, 9% higher than a year ago.
The stronger bottomline was led by healthy growth in net interest income, fee and commission income and net trading income but partly offset by higher operating expenses and allowances.
Net interest income increased by 15% to $1.46 billion, contributed by higher net interest margin and loan growth.
Due to the one-off accelerated recognition of non-performing assets (NPA) on oil and gas and shipping exposures, the group’s NPA increased 26% year-on-year and 12% from the previous quarter to $4.39 billion.
As at Dec 31 2017, the group’s Common Equity Tier 1 and Total CAR remained at 15.1% and 18.7% respectively. On a fully-loaded basis, the Common Equity Tier 1 CAR rose to 14.7% from 12.1% a year ago. The group’s leverage ratio was 8.0%, well above Basel’s minimum requirement of 3%.
The board is recommending a final dividend of 45 cents per ordinary share, and a special dividend of 20 cents.
See: UOB reports 16% higher 4Q earnings of $855 mil; brings FY17 earnings to $3.4 bil
Following the results announcement, RHB is maintaining its “buy” call on UOB with a target price of $30.00.
During the quarter, net interest margin (NIM) was 2 basis points (bps) wider q-o-q at 1.81%, and 12bps wider y-o-y. The group’s NIM has been flat or widening on a q-o-q basis for the past six quarters.
In a Wednesday report, analyst Leng Seng Choon says, “Management guided for wider NIM going forward, on the back of a higher interest rate environment. We forecast 2018 NIM of 1.82%, wider than 2017’s 1.77%.”
The analyst believes that UOB has chosen to be relatively conservative in its dividend payout, despite its fully loaded Core Equity Tier 1 Capital Adequacy Ratio of 14.7%, and management being comfortable with a 12.5% long-term level.
DBS is also reiterating its “buy” call on UOB with a target price of $29.50.
The group ended FY17 with a 5% loan growth and continues to be optimistic about FY18’s outlook, while guiding for high single-digit loan growth. It also remains optimistic about Thailand and Greater China, as domestic loan growth continues to grow.
In addition, the group has two key priorities to tap into opportunities in the region: boost fee income and tap connectivity flow.
In a Thursday report, analyst Sue Lin Lim deems that the worst is over for the oil and gas episode, as the group has accelerated recognition of residual vulnerable exposures in the oil and gas related sectors.
Compared to its peers, UOB may require a higher capital buffer as it relies more on asset growth. It remains a possibility for it to take on acquisitions in the near term as it seeks to optimise healthy returns on its capital.
On the other hand, CIMB is upgrading its rating on UOB to “add” from “hold” previously with a target price of $28.00.
UOB’s net interest income and NIM were higher during the quarter.
In a Wednesday report, analyst Yeo Zhi Bin says, “We see some scope for the bank to further deploy excess liquidity, and project NIM to average 1.82% in FY18F. We forecast loan growth of 7% for FY18F; with growth expected to stem from Singapore, Thailand and Greater China.”
Meanwhile, the group would be adopting netting of fee expenses treatment, similar to its peers DBS and OCBC. When applied retrospectively, the analyst believes that FY17 CIR would be 43.7% (instead of 45.5%); FY17 fee/total income would be 21.9% instead of 24.4%.
Yeo says that higher net interest income, fees and benign credit costs are tailwinds for all three Singapore banks, and UOB is not an exception. Hence, he has raised FY18F-19F EPS by 4.1-5.4% on higher fees and lower credit costs.
Since 2017, UOB has lagged peers, but the analyst now sees a decent entry level for the stock (6.7% upside +3.4% FY18F yield).
As at 11.05am, shares in UOB are trading 0.63 or 2.40% higher at $26.87.
The stock is trading 1.1 times FY18 book with a dividend yield of 3.6%.
