Analyst briefings: UOB 3Q19 earnings

UOB logoPhoto by Leslie Shaffer

UOB reported Friday its third quarter net profit climbed 8 percent to S$1.12 billion on stronger client franchise income and trading and investment income.

The net interest margin (NIM), or the difference between the interest rate banks charge to lend and their cost of funds, dropped to 1.77 percent in the quarter from 1.81 percent in the year-ago period, UOB said.

Shares of UOB ended Friday down 0.97 percent at S$26.57.

These are analysts’ calls on the results:

DBS Group Research

DBS Group Research said UOB’s results were “robust,” despite the pressure on NIMs.

UOB has said there may a 5-10 basis point decline in NIMs on-year ahead on falling interest rates, with the bank looking to adjust its funding costs, in part by shifting more fixed deposits into savings deposits, DBS said in a note Friday.

DBS estimated UOB’s NIM would decline around 5 basis points for 2019. While the note said high single digit loan growth was expected this year, above peers, UOB’s loan growth appeared likely to slow next year, DBS said.

DBS kept UOB’s shares at Buy with S$29.20 target price, saying the stock is supported by a high dividend yield of around 4.7 percent.

The stock’s current valuations of around 1.1 times 2020 price-to-book-value are undemanding and below the 10-year historical average, the note said.

“UOB’s share price tends to outperform in weaker market conditions and has a defensive franchise which is less exposed to volatility in  wealth management fees,” DBS said. “We believe UOB will continue to leverage on its strong capital position to capture cross-border loan growth opportunities as it continues to target broad-based commercial loan growth amid a slower growth environment.”

OCBC Investment Research

OCBC Investment Research said the earnings were solid, but NIMs came under pressure.

“With the lower interest rate environment and net interest margin expected, our broad sector view remains neutral. While business sentiment is expected to remain weighed down by concerns over global economic headwinds, management believes it is well positioned via its
regional footprint to benefit from continued investment flows as businesses diversify supply chains amidst trade tensions,” OCBC said in a note Friday.

“Newly opened branches in Hanoi, Vietnam and Zhongshan, China are expected to add to the extended connectivity for customers across Southeast Asia and China,” the note added.

It kept a Buy call with S$29.40 fair value on UOB’s shares.

CGS-CIMB

CGS-CIMB said UOB’s results beat its net profit forecast by 4 percent, despite pressure on NIMs, mainly on stronger investment gains and credit card income.

The nine-month net profit came in at 77 percent of its full-year forecast, the brokerage said in a note Friday.

The NIM compression was broad-based across the region, except for Greater China, mainly due to lower asset yields, the note said.

CGS-CIMB kept the stock at Add, with a S$29.54 target price.

RHB

RHB said the results were in line with nine-month earnings accounting for 77 percent of its full-year forecast.

RHB kept a Buy call on UOB’s shares, but put its S$29.50 target price under review.

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