Tuesday 17 February 2015

UOB

OCBC on 13 Feb 2015

UOB closed FY14 with net earnings of S$3249m, up 8% and also ahead of market consensus of S$3177m (based on Bloomberg). Management guided for 5-10% loans growth for 2015 and expects fee income to be stable despite heightened market volatility. Its exposure to the oil and gas sector is about 5% of its portfolio. On its wealth business, its current AUM amounted to S$80b, and management expects to reach its target of S$100b in the next few years. On M&A, management shared that it is not the right time to acquire at this juncture. UOB’s share price has performed well since the low of S$21.50 in late Oct 2014 and is trading close to our fair value estimate of S$24.20 now. While we have fine-tuned our FY15 earnings, we are retaining our fair value estimate for now as we do not expect any near to medium term share price re-rating based on current market conditions. With less than 10% upside, we downgrade UOB to a HOLD.

FY14 results were ahead of consensus
UOB posted FY14 net earnings of S$3249m, up 8%, and ahead of consensus of S$3177m based on Bloomberg. Its performance in 4Q14 was fairly muted, with net earnings of S$786m, up 1.7% YoY and down 9.3% QoQ. Net Interest Margin (NIM) fell from 1.71% in 3Q14 to 1.69% in 4Q14. Allowances in 4Q14 rose +19% YoY and +2% QoQ to S$166m. It declared a final dividend of 50 cents and a special dividend of 5 cents, bringing total payout to 75 cents. 

Guiding for loans growth of 5-10% 
Management guided for 5-10% loans growth for 2015 and expects fee income to be stable despite heightened market volatility. On the interest rate front, it expects rates to remain low and any increases are likely to be gradual and small. Overall, its assessment is that the current low oil price is positive for South-east Asia, an area that it operates in. On its exposure to the oil and gas sector, this amounted to about 5% of its portfolio, and if extended to agriculture and commodities, this accounted for less than 10% of its portfolio. On its wealth business, its current AUM amounted to S$80b, and management expects to reach its target of S$100b in the next few years. Wealth Management accounted for about 47% of its personal financial services profits in FY14, up from 20% in FY10. On its exposure to Sentosa properties, management shared that it is about 2.6% of its loans portfolio and that 80% of its property loans are for owner-occupied units, with LTV of about 70-80%. On M&A, management shared that it is not the right time to acquire at this juncture. 

Downgrade to HOLD
UOB’s share price has performed well since the low of S$21.50 in late Oct 2014 and is trading close to our fair value estimate of S$24.20 now. While we have fine-tuned our FY15 earnings, we are retaining our fair value estimate for now as we do not expect any near to medium term share price re-rating based on current market conditions. With less than 10% upside, we downgrade UOB to a HOLD.

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