UOB

Kim Eng on 8 Aug 2012

Valuations raised, Sell maintained. 2Q12 net profit of SGD713m (up 4% QoQ, 12% YoY) was better than expected, accounting for 54% our full-year forecast, 56% of consensus. Upside surprise emanated from still-high investment gains and lower-than-expected provisions. Our 2012 forecast is raised by 4% while our TP is revised up to SGD17.30  from SGD15.50 on a P/BV of 1.2x (1.1x previously) to reflect a higher 2012 ROE projection of 11.9% (11.5% previously). Valuations, however, are not cheap in our view, with the stock trading at a 2012 P/BV of 1.4x (11.9% ROE), while offering a yield of just about 3.5%.

Positively, investment gains, while down 10% QoQ, held up better than its peers’. Fee income, meanwhile, saw expanded healthily by 14% YoY, with still healthy expansion in loan-related income (+10% YoY) and higher investment-related fees.

On the flip side, NIMs compressed 6 bps QoQ to 1.92% (-5 bps for DBS, -9bps for OCBC). The narrowing was mainly in Singapore, where mortgage competition is intense and funding costs are still pressured. NIMs in Malaysia and Thailand slipped 1-3 bps but improved 20 bps in Indonesia. Guidance is for ongoing pressure in 2H12, but to a lesser extent than in 2Q, given expected stability in regional NIMs.

Loan growth guidance lowered. Annualized loan growth of 8% trails earlier expectation of mid-teens growth and cautiousness prevails, with guidance lowered to high-single digit loan growth for the year. 2Q12 saw Singapore annualized loan growth at 9% annualized, but a stronger 14.6% in Malaysia, where the group has made significant headway into the corporate lending market.

Wee Cho Yaw takes on position as Chairman Emeritus and will stay on as a director of the bank. Taking up his position as Non-Executive Chairman is Hsieh Fu Hua, who was previously CEO of the Singapore Exchange and a board member of Government of Singapore Investment Corporation and Temasek Holdings.