UOB’s 1Q15 net earnings came in at S$801m, up 1.6% YoY and 1.9% QoQ. Net Interest Margin (NIM) improved from 1.73% in 1Q14 and 1.69% in 4Q14 to 1.76% in 1Q15 – the highest among the three banks for this quarter. Net Interest Income rose 8.3% YoY and 2.8% QoQ to S$1201m. Non-interest Income was strong at S$755m, up 17.5% YoY and 10.7% QoQ. Management is cautiously optimistic about its prospects and is guiding for mid to high-single digit loans growth and cost-to-income of around 43%. As its 1Q results were generally in line with our expectations, we are keeping our FY15 and FY16 estimates largely intact. We are increasing our fair value estimate to S$25.20, but keeping our HOLD rating as we see limited price upside at current price. We will be buyers at S$23.80 or lower.
1Q came in within expectations
UOB delivered almost flat 1Q15 net earnings of S$801m, up 1.6% YoY and 1.9% QoQ. While its net earnings were the lowest among the three banks for this quarter, its Net Interest Margin (NIM) was the highest at 1.76% (up from 1.73% in 1Q14 and 1.69% in 4Q14). Management attributed this to better allocation of assets to core activities, which allowed it to enjoy better pricing in Singapore. Net Interest Income rose 8.3% YoY and 2.8% QoQ to S$1201m. Non-interest Income was strong at S$755m, up 17.5% YoY and 10.7% QoQ. On a QoQ basis, the improvements came from Wealth and Credit Cards. Trading and Investment Income were also higher for the quarter, with the former up 21% YoY and 29% QoQ to S$153m.
Cautious tone, keeping cost at 43% level
While there were pockets of strength in the 1Q15 results and management is fairly positive on the outlook for Singapore, they are cautious about the outlook for the rest of its regional businesses, especially Malaysia and Indonesia, where they have exercised more care in terms of new businesses. For the latter, they shared that the environment remains challenging and the need to focus on asset quality remains key. In terms of loan growth, expectation is in the range of mid to high-single digit growth. Management also guided for the cost-to-income ratio to be at around the 43% level, but high investment in technology is likely to remain for the rest of the year. Among the expected growth segments are its Wealth and Fund Management units.
Maintain HOLD, up FV to S$25.20
As its 1Q results were generally in line with our expectations, we are keeping our FY15 and FY16 estimates largely intact. In line with the recent re-rating for the banking sector, we have raised our peg marginally from 1.25x to 1.3x book, increasing our fair value estimate from S$24.20 to S$25.20. UOB’s stock has performed well, rising from its March 2015 low of $22.40 to a recent high of $25.05, up 12%. At current price level, we see limited upside and are maintaining our HOLD rating. We will be buyers at S$23.80 or lower.
UOB delivered almost flat 1Q15 net earnings of S$801m, up 1.6% YoY and 1.9% QoQ. While its net earnings were the lowest among the three banks for this quarter, its Net Interest Margin (NIM) was the highest at 1.76% (up from 1.73% in 1Q14 and 1.69% in 4Q14). Management attributed this to better allocation of assets to core activities, which allowed it to enjoy better pricing in Singapore. Net Interest Income rose 8.3% YoY and 2.8% QoQ to S$1201m. Non-interest Income was strong at S$755m, up 17.5% YoY and 10.7% QoQ. On a QoQ basis, the improvements came from Wealth and Credit Cards. Trading and Investment Income were also higher for the quarter, with the former up 21% YoY and 29% QoQ to S$153m.
Cautious tone, keeping cost at 43% level
While there were pockets of strength in the 1Q15 results and management is fairly positive on the outlook for Singapore, they are cautious about the outlook for the rest of its regional businesses, especially Malaysia and Indonesia, where they have exercised more care in terms of new businesses. For the latter, they shared that the environment remains challenging and the need to focus on asset quality remains key. In terms of loan growth, expectation is in the range of mid to high-single digit growth. Management also guided for the cost-to-income ratio to be at around the 43% level, but high investment in technology is likely to remain for the rest of the year. Among the expected growth segments are its Wealth and Fund Management units.
Maintain HOLD, up FV to S$25.20
As its 1Q results were generally in line with our expectations, we are keeping our FY15 and FY16 estimates largely intact. In line with the recent re-rating for the banking sector, we have raised our peg marginally from 1.25x to 1.3x book, increasing our fair value estimate from S$24.20 to S$25.20. UOB’s stock has performed well, rising from its March 2015 low of $22.40 to a recent high of $25.05, up 12%. At current price level, we see limited upside and are maintaining our HOLD rating. We will be buyers at S$23.80 or lower.
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