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Investor CentralUnited Overseas Bank Ltd. - Is it overexposed to Singapore property loans - which of the brokers is right?
6/8/2013 – Brokers have largely remained bullish after UOB's Q2 results, but Maybank Research is still bearish citing concern over its domestic property loan exposure.
Looking ahead, management expects net interest margins to hover around current levels of 1.71%.
Management is comfortable to keep loan-to-deposit ratio at around current levels 90%.
The company just announced earnings for Q2 FY13:
Revenue: +2.1% YoY to S$1.6 bln
Net interest income (NII): +3.5% to S$1 bln
Net interest margin (NIM): 1.71% vs 1.92%
Non-interest income: Flat at S$628 mln
Profit: +9.9% to S$783 mln
Cash flow from operations: (S$2.4 bln) vs S$808 mln
Dividend: 20 cents vs 20 cents
The improvement in UOB's earnings was underpinned by strong fee income, steady growth in loans and higher associates' profits.
Net interest income exceeded S$1 bln this quarter, a new milestone, as the group's loans portfolio grew 3% to S$173 bln, bringing year-to-date loans growth to 11%.
Bullish analyst report
OSK Research says UOB's quarterly fee income of S$436 mln was above the earlier guided normalised run rate of S$350 mln to S$400 mln per quarter.
Q2 profit hit a new high of S$783 mln, beating both the house and consensus estimates.
The numbers were lifted by lower-than-expected impairment charges.
In view of the sustained pace of earnings growth, upgrade in loans growth guidance and NIMs having bottomed, the analyst reiterated its BUY call and upgraded the fair value from S$24.20 to S$24.40.
It raised FY13 to FY14 net profit forecasts by 5.4% to 2.8% to reflect lower loan charge-off assumptions.
DBS Research upgraded the stock to HOLD with target price raised to S$21.90 after raising its FY13 to FY15 earnings forecast by 1% to 3% due to higher loan growth.
Phillip Capital Research maintained its ACCUMULATE call with a higher target price of S$21.80.
It remains positive on UOB's resilient earnings, strong fees and commission.
Bearish analyst report
Maybank Research says UOB's H1 net profit of S$1.5 bln was above consensus but only within its own expectations.
Overall, results were lackluster on account of a drop in non-interest income, which offset fairly robust fee income growth of 13% in Q2.
And bottomline growth was driven primarily by lower provisions and a one-off associate gain.
The house is primarily concerned about UOB's higher exposure to the domestic property sector, for which it believes a discount to peers is warranted at this stage.
Hence, the analyst maintained its SELL call on the stock with an unchanged target price of S$20.50.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. Is UOB overexposed to domestic property loans?
Housing loans currently account for 28% of UOB's loan portfolio end-June, versus 20% for DBS.
Moreover, 25% of its borrowers have more than one property loan as opposed to just 4% for DBS.
2. How will it stabilise declining NIMs in Thailand and Indonesia?
NIMs stabilized at 1.71% in Q2 vs 1.7% in Q1 on the back of an improved asset mix.
On a geographical basis, NIMs improved 2 basis points QoQ in Singapore to 1.31% and 6 basis points Malaysia.
But it slipped 7 basis points in Thailand to 3.4% and 39 basis points in Indonesia to 4.49%.
Management guides for ongoing stable NIMs for the year.
Wholesale loan yields remain competitive but management hopes to further improve asset mix and contributions from overseas operations.
3. Will there be more gains booked from its associates?
UOB's earnings were lifted by write-backs and one-off associate income gains.
An S$11 mln write-back in its Thai portfolio from a non-performing asset and a spike in associate income related to the sale of investments held by the associate lifted earnings.
DBS Vickers Research says there will be more gains booked in the associate income line next quarter, though a smaller amount.
4. Will trading income decline further in Q3?
UOB's net trading income declined 34.4% to 99 mln mainly due to losses incurred from the sale of government securities as a result of the steepening yield curve.
This also leads to next question.
5. Does it expect continued steepening of the yield curve?
We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.
Sofar, we have not had a reply (which is why you are seeing this message).
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