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UOB&rsquo s ($20.33, up 0.29) earnings for 3Q15 decreased marginally by 1.0% yoy, but was up 12.6% qoq at $858 million, coming in about 5.3% above expectaƟ ons. Total income was 5.8% higher at $2.09 billion, led by strong core income and one-off gains from sale of investment securiƟ es. Net interest income grew 6.9% to $1.24 billion in 3Q15. Net interest margin increased 6 basis points to 1.77%, contributed mainly by improved loan yields as the loan porƞ olio re-priced on rising interbank and swap off er rates. Fee and commission income grew 2.1% to $485 million, on higher contribuƟ ons from credit card and wealth management income. Trading and investment income surged 20.6% to $310 million due to one-off gains from the sale of investment securiƟ es, but partly off set by lower net trading income. Consequently, non-interest income for 3Q15 increased 4.2% to $850 million. Total expenses increased 13.0% to $904 million mainly on higher headcount and increased business volumes in support of franchise growth. Expense-to-income raƟ o was 43.4% in 3Q15. Total allowances were fl at at $160 million. Gross loans grew 3.7% from a year ago and 0.4% quarter-on-quarter to $203 billion as at 30 September 2015. In constant currency terms, the underlying loan growth was 5.5% when compared to the same period last year. The Group&rsquo s liquidity posiƟ on remained robust. Customer deposits rose 9.0% from a year ago and 1.3% over 2Q15 to $245 billion as at 30 September 2015, led mainly by growth in Singapore dollar deposits. The Group&rsquo s loan to deposit raƟ o was 81.6% with deposit growth outpacing loan growth in the quarter. The Singapore dollar and all currency liquidity coverage raƟ os were 186% and 134% respecƟ vely, well above the regulatory requirements of 100% and 60%. Asset quality stayed resilient with a NPL raƟ o of 1.3% as at 30 September 2015, albeit an increase from 1.2% before due to a few problemaƟ c oil and gas accounts. NPL coverage remained strong at 142.7% and 345.4% if collateral was considered. Shareholders&rsquo equity increased 5.6% from a year ago to $30.2 billion as at 30 September 2015, largely contributed by net profi ts and improved valuaƟ ons on available-for-sale investments. Return on equity was 11.1%. As at 30 September 2015, the Group&rsquo s strong capital posiƟ on remained well above the MAS minimum requirements with Common Equity Tier 1 and Total CAR at 13.6% and 16.4% respecƟ vely. The Group&rsquo s leverage raƟ o stood at 7.2% as at 30 September 2015, well above the minimum requirement of 3%. Looking ahead, management maintains for a mid-single digit loan growth across their loan porƞ olio, slightly beƩ er than OCBC&rsquo s low single digit loan growth guidance. With the 12 month SIBOR having doubled on a year on year basis and with the US Federal Reserve expecƟ ng to start raising interest rates in Dec&rsquo 15, UOB&rsquo s net interest margin which has risen 6 basis points in 3Q&rsquo 15 is expected to rise further. Part of this is expected to be off set by higher NPL and slowing loans growth though. To celebrate its 80th year of founding, UOB has declared a one-Ɵ me special dividend of 20 cents a share. Including its normal annual 70 cents a share, dividend yield is an aƩ racƟ ve 4.4% (3.4% div yield if we exclude the one-Ɵ me 20 cents dividend). This coupled with its undemanding 10x PE, 1.1x book and decent ROE of 11-12%, we maintain our BUY recommendaƟ on (we note that The Wee family has been buying shares in UOB recently with 250,000 shares purchased in Aug&rsquo 15 at $19 and 270,000 shares purchased in June&rsquo 15 at $22.835, raising their stake to 18.1% of the company).
Singapore Research Team Tel: 6533 0595 Email: [email protected]
SECTOR UPDATE
Banking & ndash Singapore
3Q15 Roundup: DBS And UOB Share The Limelight
DBS did well and met expectations despite the drop in trade loans and one-time
charge of S$50m for adopting FVA to valuations of derivatives. OCBC disappointed
on asset quality although the new NPLs from rescheduling of loans extended to Oil &
Gas support services companies were not overdue. BUY DBS. Maintain
OVERWEIGHT.
WHAT& rsquo S NEW
& bull UOB exceeded expectations and DBS met expectations for their 3Q15 results. On the
contrary, OCBC& rsquo s results were slightly below expectations.
& bull DBS generates higher growth from loan book. DBS outperformed with growth of
13.2% yoy for net interest income. It benefitted from a 3bp qoq expansion in NIM as a
result of improvement in cost of deposits. DBS& rsquo loan growth was also stronger at 9% yoy,
compared with 3.8% for OCBC and 3.6% for UOB. UOB& rsquo s NIM held steady at 1.77%.
& bull UOB overcomes drag from market-sensitive fee income. UOB outperformed in
generating growth of 4.2% qoq in fees, which came from increased contributions from
credit cards and loans-related fees. The pick-up in approval of business loans in recent
quarters could have contributed to the higher contributions from loans-related fees.
& bull OCBC suffered significant reduction in contribution from its life insurance business due to
mark-to-market losses for its portfolio of bonds and equities.
& bull Treasury business benefited from increased hedging activities. Net trading income
was robust across all three Singapore banks. There was an increase in customer flows
given volatility in exchange rates for regional currencies, including the unexpected
depreciation of the Chinese renminbi.
& bull OCBC fall prey to vulnerability in exposure to oil & gas. Asset quality was resilient at
DBS and UOB with NPLs relatively unchanged. OCBC surprised on the downside as NPL
ratio crept up by 0.2ppt to 0.9%. The bank had rescheduled loans extended to oil & gas
support services companies. Although not overdue, these rescheduled and restructured
loans have been conservatively classified as NPLs. OCBC has reduced exposure to oil &
gas from 7% to 6% of total loans.
& bull OCBC& rsquo s loan-loss coverage deteriorated to 125%, below the 155.9% seen in 2Q15.
ACTION
& bull Maintain OVERWEIGHT. The outlook is uncertain with the impending interest rates hike
in the US and further slowdown in China. Regional countries need to overcome domestic
challenges that impede economic growth.
& bull Nevertheless, valuations for Singapore banks are attractive after the recent share price
correction with dividend yield at 3.5-4.0%. Share price should gradually recover especially
if there is further evidence in upcoming results that the adverse economic environment
outside Singapore has not damaged asset quality.
PEER COMPARISON
Price @ Target Market FY ------ PE ----- ------- P/B ------- P/PPOP ------ Yield ------ ------- ROE -------
Price Cap 2015F 2016F 2015F 2016F 2015F 2016F 2015F 2016F 2015F 2016F
(S$) (S$) (US$m) (x) (x) (x) (x) (x) (x) (%) (%) (%) (%)
DBS DBS SP BUY 17.25 22.34 30,764 12/2014 9.9 9.6 1.11 1.03 7.0 6.5 3.5 3.5 11.3 11.0
OCBC OCBC SP BUY 8.95 11.25 26,258 12/2014 9.9 9.8 1.14 1.07 7.7 7.4 4.0 4.0 11.5 11.0
UOB UOB SP NR 20.21 n.a.23,079 12/2014 10.2 9.9 1.09 1.02 n.a. n.a. 4.0 3.9 10.9 10.6
Source: Bloomberg, UOB Kay Hian
16/11
Ay9876 ( Date: 02-Nov-2015 10:28) Posted:
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any ex-date for this 20 cents?
vivivava ( Date: 30-Oct-2015 15:21) Posted:
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ang pow 0.2 special div
UOB may be rejected at $20.
http://mystocksinvesting.com/&hellip /uob-shooting-star-at-20-res&hellip /now at 18.73. should i go into it?
sell immediately
bin98258 ( Date: 21-Aug-2015 19:45) Posted:
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Reccomend
Sell
I had bought the UOB with $21.58 in last 2 weeks and now my porfollio has unreaised loss of $2.7k with the last closing price of $19.11. Anyone can advise that I should sell it or keep it?
Let the election invites the bull to come and stay
sure the Big Bad Bear will be here for quite some time. Belive or not many SMEs are suffering from low or no orders. Many have lost their jobs. Govt will call for election very fast. Those who lost their jobs will likely vote for the opposition. So likely govt will dissolve parliament very soon.
senecus ( Date: 21-Aug-2015 11:30) Posted:
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Is this bear here to stay?
most shares price will drop. Bear is here. Economy is gloomy. Recession is at the door. Sure better trade with care
senecus ( Date: 21-Aug-2015 10:57) Posted:
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Down $6+ from 52 weeks high.
Hehe, if they raise interest rates, they collect more taxes, just think about it. Unless their economy is really down and confidence out, but now it' s already climbing. I think US will raise interest rates.
And the biggest beneficiary will be DBS among all the local banks. The other two will also benefit.
Before Mon mkt opens, I suggest put in a bid for any of the three banks to get into position in the pre market matching.
Why will interest rates continue to rise?
US has to raise interest rates. Low interest rates serve a purpose. Low interest policy has outlived the reason for it' s existence, ie to pump prime the economy, which it has already done.
The US govt is in severe debt shock, they owe 21 trillion, and figure is climbing every month.
They need taxes to slowly reduce that debt.
Bubbles are also beginning to show. Low interest rates always result in bubbles created, always.
So it' s the devil or the deep blue sea.
Kyoto2008 ( Date: 15-Aug-2015 23:26) Posted:
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But RMB devaluation just leads to stabilisation of Chinese economy, consumption and production will increase. The stock mkt crash in China will be so distant, noone will even remember such a thing happened as China climbs out from the shadows.
Shadow banking, credit issues. These balloon up when GDP is dropping, when China reverses gear, those issue could disappear. Ah but sadly, they need to be tackled, just hope human wisdom in China would prevail, this govt is pretty iron fisted and coming to draconian, unlike past Chinese leadership. Time will tell. Though the way they tackled the recent crisis is an indication the govt is on top of things. and the top man is in full control, that' s a comfort.
Kyoto2008 ( Date: 15-Aug-2015 23:18) Posted:
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Anyway, my gut feel tells me, all three banks will zoom up in price next week.
China devaluation will be seen as positive news for the global economy.
Never mind if Japan kenna whacked (Abe san would finally see that generally humans don' t value what they received, but only value what they can receive - in other words, he faces the truth. Possibly he can be booted out).
Australia would suddenly see the sun rays shining when the clouds move back)
Commodities finally found their bottom, and start rising.
I think interest rates will rise though. This is controversial, ppl think RMB devaluation will lead to US economy slowing down. No. I think the shale biz would be whacked, yes, and that' s due to Saudi Arabia, and now Iran pumping more oil. Not forgetting US consumers will benefit from lower oil prices, and global economy will benefit tremendously from lower oil prices just that it needs time for gains to be recognized, there is always a lag time for these things but we must be informed to be on the right track.
Simple case in point. Funding, where do banks get their funding from? Deposits right? If you look at UOB' s profile, that' s been increasing. Why?
Trust.
It' s loan to deposit ratio is in the 80s.
Supposing bad news hit, and the deposits are withdrawn. Loans are committed. There is immediately a crisis. How to get money to pay it' s operating costs? Service their bonds? I think they have preference shares too.
Understand why public trust is so important to a bank?
You can' t run a bank like a normal business.
Now does the top mgt in UOB understand this simple principle?
Kyoto2008 ( Date: 15-Aug-2015 22:51) Posted:
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