UOB Group turned in FY11 net earnings of S$2327m, down 14%, and below market expectations of S$2407m (4Q net earnings of S$558m). While Net Interest Income rose 4% to S$3678m, Non-interest Income slipped 11% to S$2020m. Impairment charge went up 10% to $523m, or S$225m in 4Q alone. Net Interest Margin reversed from 1.89% in 3Q11 to 1.95% in 4Q11. We expect corporate banking to continue to do well in FY12 as it grows its regional franchise. We are leaving our FY12 estimates intact, but raising our fair value estimate to S$19.74. Maintain BUY.
Below expectations 4Q
UOB Group turned in FY11 net earnings of S$2327m, down 14%, and below market expectations of S$2407m (4Q net earnings of S$558m). The variance between our forecast and the actual results came mainly from lower Non-interest Income and higher provisions. While Net Interest Income rose 4% to S$3678m, Non-interest Income slipped 11% to S$2020m. This was due to sharply lower Other Income which fell 43% to S$515m. Impairment charge went up 10% to S$523m, or S$225m in 4Q alone. Some of the positives included better Net Interest Margin (NIM), which reversed from 1.89% in 3Q11 to 1.95% in 4Q11. Management is hoping to keep it at this level for the rest of the year. Full-year dividend remained unchanged at last year’s level of 60 cents (final dividend is 40 cents).
Corporate banking set to do well in FY12
While market conditions remained challenging, UOB, like its peers, enjoyed strong double-digit increase in corporate banking contribution in FY11. For this year, we expect this to remain a strong contributor as the consumer/retail segment is likely to still remain challenging and slow. Management is growing its regional corporate banking business and remains positive that it is able to grow the overseas contribution to 50% of the corporate banking pie by 2015 versus 38% in FY11. As a reflection of this, overseas wholesale loans growth was 45% in FY11, almost doubling the group’s overall rate of 26%.
Retain BUY; up fair value to S$19.74
While FY11 results were below the street’s expectations, it was only marginally below our forecast of S$2352m. For FY12, we have left our projections largely intact, projecting net earnings of S$2570m, up 10.4% YoY. The recent re-rating of banking stocks has brought its share price close to our previous fair value estimate. As the outlook is still uncertain for most external economies, we are retaining our valuation at 1.4x book (but rolling to FY12 estimate) and this raises our fair value estimate to S$19.74. With dividend of 60 cents, we are retaining our BUY rating.
Corporate banking set to do well in FY12
While market conditions remained challenging, UOB, like its peers, enjoyed strong double-digit increase in corporate banking contribution in FY11. For this year, we expect this to remain a strong contributor as the consumer/retail segment is likely to still remain challenging and slow. Management is growing its regional corporate banking business and remains positive that it is able to grow the overseas contribution to 50% of the corporate banking pie by 2015 versus 38% in FY11. As a reflection of this, overseas wholesale loans growth was 45% in FY11, almost doubling the group’s overall rate of 26%.
Retain BUY; up fair value to S$19.74
While FY11 results were below the street’s expectations, it was only marginally below our forecast of S$2352m. For FY12, we have left our projections largely intact, projecting net earnings of S$2570m, up 10.4% YoY. The recent re-rating of banking stocks has brought its share price close to our previous fair value estimate. As the outlook is still uncertain for most external economies, we are retaining our valuation at 1.4x book (but rolling to FY12 estimate) and this raises our fair value estimate to S$19.74. With dividend of 60 cents, we are retaining our BUY rating.
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