UOB 4Q18 earnings may outperform peers on lower China exposure

UOB logoPhoto by Leslie Shaffer

Singapore bank UOB may outperform its peers DBS and OCBC when it reports earnings on Friday, benefiting from its lower exposure to China and wealth management, analysts said.

That was after DBS reported fourth quarter results which missed some forecasts, dented by financial market volatility in the second half of 2018, which hurt demand for wealth management and market trading.

UOB’s full-year net profit is expected to come in around S$4.08 billion, with net interest income at S$6.29 billion, based on the average of five analyst forecasts. Non-interest income for the full year was expected around S$3.08 billion, based on the average of four analyst forecasts.

The analysts’ forecasts for net interest margin for the full year were in a range of 1.80 percent to 1.84 percent.

The bank has the least exposure to Greater China compared with its peers, Daiwa said in a December note.

UOB’s exposure was at 9.5 percent of total revenue for the first nine months of 2018, compared with 15-29 percent for its peers, Daiwa said, adding it also has the largest exposure to Southeast Asia, at 83 percent of its revenue for the nine-month period.

“UOB is also less dependent on trading, insurance and ultra-high-net-worth private banking, making it the closest pure-commercial bank in the sector,” Daiwa said.

But it added that UOB wasn’t entirely in the clear, as it does have a higher exposure to Southeast Asia and to the small- and medium-sized enterprise (SME) segments.

CGS-CIMB pointed to benefits ahead from the bank’s Southeast Asia focus.

“We think that UOB is well-placed to benefit from a displacement in supply chains from Greater China into neighbouring ASEAN countries in the event that the U.S.-China trade war tensions escalate,” CGS-CIMB said in a note in late January.

“Having the smallest wealth franchise among peers, UOB is also less likely to be affected by subdued client activity in uncertain and volatile markets,” it added, noting the bank’s wealth management tends to target the “mass affluent,” and was therefore more stable, and less market dependent.

However, UOB could show signs of some headwinds in its home market of Singapore, as mortgage lending has slowed in general since the government introduced a fresh round of property market cooling measures in July.

Around 27 percent of UOB’s loans were exposed to housing in the third quarter, with another 23 percent exposed to building and construction, according to a December DBS research report.

 

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