SINGAPORE (Feb 22): Phillip Securities Research analyst Jeremy Teong is upgrading both UOB Bank and OCBC Bank to "buy" with target prices of $29.00 and $13.94 respectively on stellar performance by each across all sectors.
UOB posted strong double-digit loans growth in the manufacturing and financial institution sectors while net interest margins (NIM) rose on the back of higher rates on customer loans and interbank balances. In addition, wealth management fees grew 29% y-o-y.
"We believe the stronger fee income was due to stronger contribution by the high net-worth segment. Total wealth management income from the segment saw a full-year growth of 35% in 2017 compared with the mass affluent segment which grew 12%," says Teong in Wednesday report.
Meanwhile, OCBC showed strong loans growth as global and domestic economic outlook improved. Loans grew 8% y-o-y led by property-related loans and general commerce, outpacing Singapore domestic system loans growth of 5.4% .
Non-interest income (NII) grew 14% and net interest margin increased 4 bps higher y-o-y to reach to 1.67% as Singapore and Hong Kong benchmark rates rose sharply in 4Q17. Higher rates on interbank placements also supported NIM expansion.
Income was also boosted by strong performance in wealth management and insurance. Total wealth management income jumped 54% y-o-y and 34% q-o-q to hit $944 million.
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Assets under management (AUM) for Bank of Singapore, OCBC’s private banking arm, grew 25% in 2017 to reach $99 billion. Insurance income continued the strong profit growth in 4th quarter due to the repositioning of assets and liabilities in the non-participating fund insurance business.
Although non-performing loan (NPL) ratio rose to 1.5% in 4Q17 on accelerated recognition of non-performing assets (NPA) from the offshore oil and gas sector, Teong says OCBC has significantly reduced its exposure to the OSV sector to $4.8 billion compared to $5.7 billion in 3Q17. Of the $4.8 billion, $1.9 billion was classified as NPL representing 40% of the OSV exposure.
As at 12.27pm, shares in OCBC are down 2 cents at $12.98 or 11.6 times FY18 earnings while UOB shares are down 20 cents at $27.40 respectively or 12.5 times FY18 earnings.
