UOB

OCBC Investment Research, Nov 6

UOB posted Q3 net earnings of S$730 million, up 3.3 per cent y-o-y and -6.8 per cent q-o-q, and above market expectations of S$701.8 million.

While net interest income improved both y-o-y and q-o-q, there was a slight drag from lower non-interest income which fell 11 per cent y-o-y and 2 per cent q-o-q. This was partly due to lower contributions from wealth management, loans-related and fund management.

Net interest margin stabilised at 1.71 per cent, same as last quarter, and bucking the downtrend experienced at the other two banks. Impairment charges fell from last year, but were up from the previous quarter to S$85 million.

With the still uncertain outlook for the key developed markets, management's outlook was understandably more muted, largely to reflect the challenging business environment in Asia. It is guiding for loans growth in 2014 to be in the high single-digit to low teen region, lower than the expected low-to-mid teens for 2013.

However, it is expecting growth to come from both its Singapore and regional operations. While retail banking could be challenging, especially on the mortgage loans front due to Singapore property measures, this is likely to be mitigated by its business banking.

Reiterate "buy"; maintain fair value of S$22.97. While there were recent pockets of uncertainty in two of its key regional markets, we do not expect these events to have long-term effect on its regional franchise. We expect regional trades to lead to still healthy transactional banking activities. Overall group performance will also be aided by its consistently prudent cost management.

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