See: UOB posts 12% rise in 3Q earnings to $883 mil on stronger net interest income, fee and commission income
NIM increased 4bps q-o-q to 1.79% largely supported by higher customer loan rates and higher interbank rates.
Net Interest Income (NII) increased 2% y-o-y to $830 million, driven by NIM and loan expansion. NIM rose 10bps y-o-y to 1.79%, due to active balance sheet management and higher yields from interbank balances and securities.
“However, we ask investors not to look in the rear-view mirror. We think that the worst of oil & gas is possibly over, come FY18,” says Teong.
Phillip Capital is impressed with UOB’s 3Q17 NII growth of 14% y-o-y as loans growth was strong and past-through of higher interest rates was firm.
Teong expects FY17 NIM to improve to 1.76% from previous estimate of 1.74% as he expects the strong momentum in performance to continue into 4Q17. With a higher NIM outlook, he is revising its FY17 PATMI growth estimate to 10% and FY18 PATMI growth estimate to 10.3%.
Management is expecting specific provision to be elevated in 4Q17 so Phillip is estimating FY17 provisions to be $790 million from $646 million previously.
“We have also revised our FY18 total credit costs to 30bps from previous estimate of 28bps,” says Teong.
Meanwhile, CIMB is maintaining its “hold” on UOB with $25.40 target price.
Manufacturing and financial institutional loans registered strong double-digit loans growth y-o-y. Housing loans growth also gained momentum; registering an increase of 6.6% y-o-y compared to 6.2% y-o-y in 2Q17.
Gross loans rose 8% y-o-y to $234 billion and analyst Yeo Zhi Bin believes that loan growth will be able to meet our full-year target of about 5%.
Non-NII was 2.5% y-o-y higher at $830 million. Fees rose 12% y-o-y on higher wealth management and credit cards. Other non-NII declined 12% y-o-y due to lower net trading income.
SP fell $51 million y-o-y to $247 million. SP as percentage of gross loans rose to 37bp, due to higher special provisions from a large account in the O&G sector.
“We understand that one last chunky account could turn in 4Q17. Hence, we expect similar NPA formation and SP in 4Q17,” says analyst Yeo Zhi Bin.
Total credit costs were flat at 32bp with a release in General Provisions (GP) made in the past. Non-Performing Loans (NPL) grew 7% y-o-y to $3.75 billion, while NPL ratio rose to 1.6%. That said, NPL coverage remained strong at 108%.
“Boosting loan growth assumptions and tempering loan loss allowances, we increase our FY17-19 EPS by 1.9-4.4%,” says Yeo.
CIMB is maintaining its “hold” with a higher $25.40 target price as the stock is trading at around mean valuations.
Shares in UOB are down 7 cents at $24.70 or based on 12.6 times Phillip's FY17 earnings.
