Review

• UOB’s 3QFY24 core net profit grew by 10% QoQ and 11% YoY to S$1,639mn. YTD core net profit expanded by 3% YoY to S$4,693mn, anchored by higher total income, profit from associates and lower allowances. Including Citi’s integration cost, the YTD net profit rose by 5% YoY to S$4,522mn. Despite that, UOB’s results came within our expectations at around 76.5% of our full-year forecast. The 9MFY24 ROE stood at 14.3%.

• 9MFY24 Net Interest Income (NII) contracted by 1% YoY (+2% QoQ), attributed to lower net interest margin (NIM), which had narrowed by 8 bps YoY to 2.04% as deposit repricing outpaced asset yield repricing. However, NIM was steady sequentially at 2.05% due to proactive deposit cost management, which helped cushion the adverse impact of the declining interest rate.

• Overall, loans were up 2% QoQ and 5% YoY to S$334bn, underpinned by broad-based wholesale growth and mortgages. YoY, loans and advances rose in Singapore, ASEAN-4 (Malaysia, Thailand, Indonesia, Vietnam) and the Rest of the World. Loans and advances in Greater China, however, declined by around 3.9% YoY to S$49bn.

• Total deposits broadened by 4.9% YoY, driven by CASA deposits, which accelerated by 16.8% YoY. The CASA ratio improved to 53.6%. Meanwhile, FDs declined by 6.1% YoY.

• 9MFY24 fee income improved by 10% YoY (+2% QoQ) to S$1,828mn, underpinned by a broad-based improvement in loan-related fees (+6.16% YoY) and the wealth management business (+16.9% YoY). The credit card fees also grew by 7.2% QoQ and 13.6% YoY. Elsewhere, trading and investment income accelerated by 19% YoY (+77% QoQ). Customerrelated treasury income continued to improve by 21%, supported by client demand for hedging activities. Other non-NII more than doubled QoQ owing to strong trading and liquidity performance.

• 9MFY24 total operating expenses broadened 4.9% to S$4,516mn from S$4,305mn a year earlier. The modest increase in overhead expenses comes on the back of tight cost discipline. The expense/income ratio for UOB stood at 41.7%, rising from 40.9% in 9MFY23. Including one-off Citi integration costs, the expense/income ratio would be at 43.7%.

• Total loan allowances improved YoY to S$699mn from S$769mn in 9MFY23. By type, specific allowances on loans deteriorated to S$624mn from S$596mn in 9MFY23 due to some issues arising from operational mergers in Thailand. With that, the total credit cost rose to 27 bps in 9MFY24 (9MFY23: 25 bps), within management’s 25-30 bps guidance. Meanwhile, the formation of new NPAs (non-performing assets) rose QoQ but fell YoY to S$5,026mn. The NPA coverage ratio stood at 99% (September 2023: 102%). NPL ratio was steady at 1.5% (September 2023: 1.6%).

• UOB’s capital position remains healthy, with a Common Equity Tier 1 (CET1) of 15.5%. Additionally, the group’s all-currency liquidity coverage ratio (LCR) stood at 141%, while the net stable funding ratio (NSFR) was 116%.

Impact

• No change to our earnings estimates.

Outlook

• Overall, UOB reported a stronger set of 3Q and 9M results. Core net profit rose 10% YoY while the core ROE expanded to 14.3% as NIM was stable at 2.05% and loans grew by 2% QoQ, driven by wholesale lending and mortgages. Fee income hit a record S$630mn due to strong trade, wealth demand, and card fees, while trading and investment income surged due to robust treasury activities. Credit quality remained stable with an NPL ratio of 1.5%, though specific allowances increased due to merger issues in Thailand. Capital and funding positions were resilient, with a CET1 ratio of 15.5% and NSFR at 116%.

• UOB foresees another year of stable and balanced growth in 2025, premised on high single-digit loan growth and double-digit fee income expansion, driving overall higher total income. The cost-to-income ratio is expected to remain stable between 41% and 42%, while credit costs are anticipated to be within the 25-30 bps range. Management notes that its strong capital position will continue to support ongoing capital management initiatives.

Valuation

• Updating beta assumptions, we adjusted UOB’s TP to S$36.40 from S$34.00, derived from an implied PBV of c. 1.13x, based on the Gordon Growth Model and a 3% ESG premium. Hold reiterated on UOB.

Source: TA Research - 11 Nov 2024