Summary: UOB posted above market expectations 3Q12 net earnings of S$707m. The main variance was a one-off increase in dividend income for the quarter. As expected, the lending business was tough as net interest margin slipped, from 1.92% in 2Q12 to 1.84% in 3Q12. Fortunately, the non-interest side bucked the trend and grew YoY and QoQ to S$693m. Disciplined cost management led to almost flat cost-to-income ratio of 41.3% in 3Q12. UOB intends to tap on more cross-sell opportunities in the wholesale and wealth space, especially in its regional business, and has also indicated that the retail portion of its fee and commission income should still remain healthy. We tweaked our estimates slightly, raising our earnings to S$2743m. Maintain BUY and fair value estimate of S$21.30.
3Q results above expectations
UOB posted 3Q12 net earnings of S$707m, up 36% YoY and flat QoQ. This is above market expectations of S$653m, or a variance of S$54m. The main reason for this difference is the one-off surge in dividend income to S$89m for the quarter, up from S$34m in 2Q12 and S$13m in 3Q11. As expected, the lending business was tough as net interest margin slipped, from 1.89% in 3Q11 and 1.92% in 2Q12 to 1.84% in 3Q12, down 8ppt from last quarter. This was very much in line with what DBS reported last week. Fortunately, the non-interest side bucked the trend and grew both YoY and QoQ to S$693m, buoyed by strong YoY increase in both Fee & Commission income as well as Other Income. Management highlighted its disciplined cost management and this led to almost flat cost-to-income ratio of 41.3%, same as previous quarter.
Guiding for high single-digit loans growth
The Loans/Deposits ratio fell in 3Q12, largely as deposits growth outpaced loans growth. Margin pressure is likely to remain. Management is guiding for high single-digit loans growth for 2013. Management also expressed confident that expenses are under control and they are committed to remain prudent (in view of the challenging conditions). It intends to tap on more cross-sell opportunities in the wholesale and wealth space, especially in its regional business. The improved capital adequacy ratios also place the group in a stronger position as it enters into 2013 with impending more vigorous regulatory requirements.
Keeping our above-market estimates and FV
While challenges remain, management has indicated that the retail portion of its fee and commission income should still remain healthy and could benefit from growth in investment related products from around the region. We were already above market for our FY12 net earnings estimates, at S$2732m versus S$2576m for the market before the results. Following the 3Q results, we have tweaked our estimates slightly, raising our earnings to S$2743m. We are retaining our BUY rating and our fair value estimate of S$21.30.
UOB posted 3Q12 net earnings of S$707m, up 36% YoY and flat QoQ. This is above market expectations of S$653m, or a variance of S$54m. The main reason for this difference is the one-off surge in dividend income to S$89m for the quarter, up from S$34m in 2Q12 and S$13m in 3Q11. As expected, the lending business was tough as net interest margin slipped, from 1.89% in 3Q11 and 1.92% in 2Q12 to 1.84% in 3Q12, down 8ppt from last quarter. This was very much in line with what DBS reported last week. Fortunately, the non-interest side bucked the trend and grew both YoY and QoQ to S$693m, buoyed by strong YoY increase in both Fee & Commission income as well as Other Income. Management highlighted its disciplined cost management and this led to almost flat cost-to-income ratio of 41.3%, same as previous quarter.
Guiding for high single-digit loans growth
The Loans/Deposits ratio fell in 3Q12, largely as deposits growth outpaced loans growth. Margin pressure is likely to remain. Management is guiding for high single-digit loans growth for 2013. Management also expressed confident that expenses are under control and they are committed to remain prudent (in view of the challenging conditions). It intends to tap on more cross-sell opportunities in the wholesale and wealth space, especially in its regional business. The improved capital adequacy ratios also place the group in a stronger position as it enters into 2013 with impending more vigorous regulatory requirements.
Keeping our above-market estimates and FV
While challenges remain, management has indicated that the retail portion of its fee and commission income should still remain healthy and could benefit from growth in investment related products from around the region. We were already above market for our FY12 net earnings estimates, at S$2732m versus S$2576m for the market before the results. Following the 3Q results, we have tweaked our estimates slightly, raising our earnings to S$2743m. We are retaining our BUY rating and our fair value estimate of S$21.30.
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