UOB posted 2Q15 net earnings of S$762m, below market expectations of S$831m, largely due to lower trading and investment income. Net Interest Income rose 7.9% YoY and 1.0% QoQ to S$1213m. Interim dividend payout went up from 20 cents to 35 cents. Management is taking a measured approach in view of volatile market condition, especially in China. Together with higher expenses as it grow its regional businesses; we are expecting flat earnings this year, with better earnings projections for FY16. We believe today’s sharp share price decline was warranted and at current price of S$22.27, we are maintaining our BUY rating. We have lowered our fair value estimate from S$25.20 to S$24.04 to reflect the recent decline in regional and local banking peers’ valuations.
2Q earnings of S$762m were below market expectations
UOB posted 2Q15 net earnings of S$762m, down 5.7% YoY and 4.9% QoQ, and below market expectations of S$831m as polled by Bloomberg. The decline was largely attributed to lower trading and investment income, which fell 30.5% QoQ to S$156m. Net Interest Income improved, up 7.9% YoY and 1.0% QoQ, to S$1213m in 2Q15. Net Interest Margin (NIM) improved from 1.71% in 2Q14 and 1.76% in 1Q15 to 1.77% in 2Q15. Total expenses also moved higher, up 11.4% YoY and 2.8% QoQ to S$877m. Interim dividend payout went up from 20 cents to 35 cents. However, management is aiming to maintain core yearly dividend at 70 cents (before special dividend).
Measured approach, NIM to hold, cost to go up
Overall, management appears fairly prudent especially in view of the volatile market conditions. They see challenges in some areas, including regional markets such as Malaysia and Indonesia as well as in China. For the latter, it has already seen a decline in trade loans in line with the slowing economy. Together with this, it is expecting expenses to go up to grow its regional businesses. This was seen in the increase in its cost-income ratio of 45.5% in 2Q15 versus 43.6% in the previous quarter.
Share price correction unwarranted, buy at $22.50 or lower
While 2Q15 results came in below both ours and market expectations, we do not think that today’s sharp share price decline was warranted (share price dropped $1.16 intra-day, wiping out market capitalization by S$1.86b, before recovering some ground). In addition, we expect impending higher interest rates to benefit UOB in the medium term as seen by the recent improvement in NIM for the three local banks. We have lowered our FY15 estimates to take into account weaker 2Q and lower trading income. At current price of S$22.27, we are maintaining our BUY rating, but lowering our fair value estimate from S$25.20 to S$24.04 to reflect the recent decline in regional and local banking peers’ valuations.
UOB posted 2Q15 net earnings of S$762m, down 5.7% YoY and 4.9% QoQ, and below market expectations of S$831m as polled by Bloomberg. The decline was largely attributed to lower trading and investment income, which fell 30.5% QoQ to S$156m. Net Interest Income improved, up 7.9% YoY and 1.0% QoQ, to S$1213m in 2Q15. Net Interest Margin (NIM) improved from 1.71% in 2Q14 and 1.76% in 1Q15 to 1.77% in 2Q15. Total expenses also moved higher, up 11.4% YoY and 2.8% QoQ to S$877m. Interim dividend payout went up from 20 cents to 35 cents. However, management is aiming to maintain core yearly dividend at 70 cents (before special dividend).
Measured approach, NIM to hold, cost to go up
Overall, management appears fairly prudent especially in view of the volatile market conditions. They see challenges in some areas, including regional markets such as Malaysia and Indonesia as well as in China. For the latter, it has already seen a decline in trade loans in line with the slowing economy. Together with this, it is expecting expenses to go up to grow its regional businesses. This was seen in the increase in its cost-income ratio of 45.5% in 2Q15 versus 43.6% in the previous quarter.
Share price correction unwarranted, buy at $22.50 or lower
While 2Q15 results came in below both ours and market expectations, we do not think that today’s sharp share price decline was warranted (share price dropped $1.16 intra-day, wiping out market capitalization by S$1.86b, before recovering some ground). In addition, we expect impending higher interest rates to benefit UOB in the medium term as seen by the recent improvement in NIM for the three local banks. We have lowered our FY15 estimates to take into account weaker 2Q and lower trading income. At current price of S$22.27, we are maintaining our BUY rating, but lowering our fair value estimate from S$25.20 to S$24.04 to reflect the recent decline in regional and local banking peers’ valuations.
No comments:
Post a Comment