SINGAPORE (Nov 3): RHB says the trend of rising interest rates would continue to propel Singapore banks’ share prices, and UOB stands to gain on account of its balance sheet strength.
This morning, UOB reported 3Q17 net profit rose 12% y-o-y to $883 million. Net interest income expanded 15% y-o-y, with the 10bps y-o-y widening in NIM a key contributor.
See: UOB posts 12% rise in 3Q earnings to $883 mil on stronger net interest income, fee and commission income
In a Friday note, analyst Leng Seng Choon says the underlying growth trend remains evident from the 7.8% y-o-y growth in loans.
UOB’s 9M17 net profit of $2.54 billion accounted for 74% and 76% of RHB’s and consensus’ pre-results 2017 net profit forecasts respectively.
As for its 3Q17 Non-Performing Loan ratio of 1.6%, while there could be further rises over the next 1-2 quarters, Lee expects the ratio will fall back to 1.6% by end 2018. “We view the relatively stable NPL ratio as a positive,” says Lee.
As for oil & gas-related provisioning, UOB’s 3Q17 overall credit cost of 32bps was the same as 2Q17’s 32 bps. However, its specific credit cost of 37bps was higher than 2Q17’s 30bps. This was mainly due to a large account in the sector.
Nevertheless, Lee sees Net Interest Margins widening ahead. He expects 2017 NIM to widen to 1.77%, on the back of SIBOR rising from hikes in US Federal Funds rate, and UOB’s active duration management.
3Q17 NIM rose 4bps q-o-q to 1.79% due to Singapore NIMs widening 6bps q-o-q to 1.41%. Management guided that future NIMs should be marginally wider. Lee is forecasting 2018 NIM of 1.80%.
Together with slightly wider NIMs, Lee expects 2017 Net Interest Income to grow 10%. The general loan expansion trend is evident from the 7.8% y-o-y growth. A 2018 loan growth of 5% is forecast.
“We lower our 2017 net profit forecast by 1%. UOB’s balance sheet strength remains a positive, given its 107% loan loss coverage, which is 7ppts higher than peers. We lift our TP to $27.50 from $26.50. Maintain ‘buy’,” says Lee.
Shares in UOB are down 6 cents to $24.72 or 12 times FY17 recurring earnings.
