UOB

OCBC on 8 Aug 2012

Summary: UOB reported above-market 2Q12 net earnings of S$713m, up 4% QoQ. Fee and Commission Income performed well, up 7% QoQ to S$386m, a new quarterly high. Net Interest Margin (NIM) fell in line with the industry, down from 1.98% in 1Q12 to 1.92% in 2Q12 (flat from 1.92% in 2Q11). The group has declared an unchanged interim dividend of 20 cents. Margin compression is likely to remain, but this should be partly mitigated by its focus on trade finance and wealth businesses. Chairman Wee Cho Yaw will relinquish his role. We have raised our FY12 earnings estimate from S$2570m to S$2732m, up by 6% due to the stronger-than-expected 2Q12 fee income. In view of the current market headwinds, we prefer to be prudent and retained our valuation methodology of pegging it at 1.5x book. Still, our fair value estimate moves up from S$19.74 to S$21.30. Maintain BUY.

UOB results came in above expectations
UOB reported 2Q12 net earnings of S$713m, above market expectations of S$628m based on information from Bloomberg. This is up 4% QoQ or 12%YoY. Net Interest Income fell 2% QoQ but up 7% YoY to S$981m, very much in line with its peers. Non-interest Income was flat QoQ and up 20% YoY to S$629m. Fee and Commission Income performed well, up 7% QoQ to S$386m, a new quarterly high. Net Interest Margin (NIM) fell in line with the industry, down from 1.98% in 1Q12 to 1.92% in 2Q12 (flat from 1.92% in 2Q11). Cost-to-income ratio remained relatively flat QoQ around 41%, but was better than last year and lower than its peers’ of 43-45%. For 1H12, net earnings amounted to S$1401m, up 12%. The group has declared an unchanged interim dividend of 20 cents which will be paid on 13 Sep 2012.

Some slowdown, but underlying strength remains
While loans growth was modest at only 1.4% in 2Q12 and NIM eased, there were some positive indicators in 2Q12 despite the general slowdown in economic growth. These include lower costs and higher fee income (corporate finance, wealth management, trade and loan-related). In particularly, we expect trade finance and wealth to still see growth. However, margin compression is likely to remain, echoing the same view as its peers.

Maintain BUY, raised fair value estimate to S$21.30
Chairman Wee Cho Yaw has announced that he will relinquish this role and former SGX CEO Hsieh Fu Hua will be taking over. We do not expect this move to have any impact on its business strategy or outlook. Meantime, we have raised our FY12 earnings estimate from S$2570m to S$2732m, up by 6% due to the stronger-than-expected 2Q12 fee income. The stock has performed well this year, up 31% YTD to S$19.95 currently. We remain positive on UOB's fundamentals, but in view of the current market headwinds, we prefer to be prudent and retained our valuation methodology of pegging at 1.5x book. Still, our fair value estimate moves up from S$19.74 to S$21.30. Maintain BUY.