Singapore | Financials
Asia Pacific Equity Research
UOB | BUY MARKET CAP: USD 29B
10 Sep 2014 Company Update
AVG DAILY TURNOVER: USD 34M
UPGRADING TO BUY
BUY (upgrade)
Fair value
S$25.00
add: 12m dividend forecast
S$0.600
versus: Current price
S$22.90
Still a good Asian franchise Slow and steady growth strategy Upgrade to BUY, FV of S$25.00
12m total return forecast
Deepening its intra-Asian roots Continuing with its focus of tapping on rising intra-regional trades, UOB recently shared more details of this strategy at its Corporate Day; this by leveraging on the potential for further trade flows within the region including further cooperation within the ASEAN Economic Community (AEC).
12%
Analysts Carmen Lee (Lead) ● +65 6531 9802
[email protected] Carey Wong ● +65 6531 9808
[email protected] Key information Market cap. (m)
UOB Malaysia – still a key market, but cost could move higher Going forward, with the investment in infrastructure investments, management expects the cost-to-income ratio to move up from prevailing low rates of 34.1%-37.2% (FY09-13) in Malaysia, which is lower than at the group’s level (41.8% as of 2Q14). Corporate/Business banking will remain key; as there is still a sizeable pool of companies in Malaysia and the economy is still growing at a healthy rate. OCBC Treasury Market Research & Strategy is projecting GDP growth of 5.3% for 2014, up from 4.7% in 2013. For the Malaysian economy, we believe growth will be supported by exports recovery and a healthy and stable financial market. Outbound trades from Malaysia have also been growing, and there has been a recent improvement in non-commodity exports. UOB Malaysia generated average ROE of 17.5% from 2001-2013, and is ranked 7th in terms of gross loans (>5% market share) in Malaysia. It posted net profit of RM1342m in FY13 and this accounted for 15% to UOB Group’s PBT in FY13 – the largest of its overseas operations. In terms of 5-yr CAGR, PBT stood at 18% and total assets was 20%. NPLs were manageable at 1.7% (gross). We also like its FDI Advisory framework, which has a long term effect of further entrenching its clients for more banking services and business flows. Medium term re-rating likely; upgrade to BUY Post its recent results, the stock fell from the recent high of S$24.24 to a recent low of S$22.53. We are seeing value emerge again in the stock, especially with the more optimistic outlook and the recent rerating of banking stocks in the region. Based on comparables’ average Price/Book of 1.4x, we are raising our valuation from S$23.87 to S$25.00. Together with a 3% dividend yield and a potential total return of 12%, we are upgrading the stock to a BUY. FY12
FY13
FY14F
FY15F
Interest Income
6,202
6,508
7,100
7,406
Interest Expense
2,285
2,388
2,582
2,702
Non-interest Income
2,578
2,601
2,846
3,074
Net profits
2,803
3,009
3,040
3,263
1.8
1.9
1.9
2.0
na
na
1.9
2.0
Non-interest income growth (%)
27.6
0.9
9.4
8.0
Interest Inc / Total Inc (%)
60.3
61.3
61.4
60.5
EPS (S$) Cons. EPS (S$)
Dividend yield (%) PER (x)
Avg daily turnover (m)
S$43 / USD34
Avg daily vol. (m)
2.0
52-wk range (S$)
19.3552 - 24.24
Free float (%)
93.2
Shares o/s. (m)
1,601.3
Exchange
SGX
BBRG ticker
UOB SP
Reuters ticker
UOBH.SI
ISIN code
U11
GICS Sector
Financials
GICS Industry Top shareholder Relative total return
Financials Wee Inv - 7.6% 1m
3m
12m
Company (%)
2
2
16
STI-adjusted (%)
-1
0
4
Price performance chart
Sources: Bloomberg, OIR estimates
Industry-relative metrics
Key financial highlights Year ended 31 Dec (S$m)
S$36,846 / USD29,194
3.0
3.3
3.3
3.3
13.2
12.3
12.1
11.3
Please refer to important disclosures at the back of this document.
Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates
HOLD (maintain) MCI (P) 004/06/2014
OCBC Investment Research Singapore Equities
Exhibit 1: Comparison of 2Q14 financials In S$m
OCBC 2Q14
OCBC 2Q13
OCBC 1Q14
DBS 2Q14
DBS 2Q13
DBS 1Q14
UOB 2Q14
UOB 2Q13
UOB 1Q14
348,414 175,572 201,297 87.2%
313,225 157,172 176,265 89.2%
343,638 173,456 199,403 87.0%
417,275 257,355 299,399 86.0%
386,600 234,787 274,608 85.5%
418,979 253,229 301,490 84.0%
296,983 189,695 216,128 87.8%
274,000 169,909 199,273 85.3%
295,999 185,270 216,617 85.5%
Stockbroking / Futures Investment related Trade & remittances Loan-related Deposit-related / Services Credit card Fund management Wealth management Others Fee & Commission
12 25 58 69 17 18 27 114 13 353
18 24 51 73 20 17 26 109 9 347
14 16 53 74 21 16 25 116 18 353
42 52 131 93
57 47 137 94
43 43 140 118
88
82
83
97 69 99 26 71 38
112 68 103 26 66 43
114 66 101 27 62 32
138 17 561
101 17 535
117 23 567
11 411
17 435
12 414
Fee & commission Dividend Rental income Other income Insurance - Net trading income - Net income fr inv securities Non-interest Income
353 56 18 164 259
347 37 17 149 56
353 11 17 196 223
503
477
510
15
69
251
410 27 30 293
436 29 29 133
414 4 29 195
850
606
800
176 62 756
336 45 927
362 38 1,161
760
627
642
Int Income Int Expense Net Interest Income Non-interest Income Total Income Total operating expenses Operating profits Allowances for credit & other losses Pretax profits Net profits
1,776 650 1,126 850 1,976 760 1,216
1,524 563 961 606 1,567 718 849
1,707 620 1,087 800 1,887 706 1,181
2,218 661 1,557 756 2,313 1,054 1,259
1,975 593 1,382 927 2,309 711 1,598
2,129 641 1,488 1,161 2,649 1,041 1,608
1,761 637 1,124 760 1,884 787 1,097
1,606 591 1,015 627 1,642 726 916
1,745 635 1,110 642 1,752 755 997
-66 1,154 921
-83 774 597
-41 1,143 899
-128 1,182 969
-245 1,099 887
-151 1,470 1,231
-150 974 808
-75 944 783
-157 882 788
1.70%
1.64%
1.70%
1.67%
1.62%
1.66%
1.71%
1.71%
1.73%
43.0% 38.5%
38.7% 45.8%
42.4% 37.4%
32.7% 45.6%
40.1% 30.8%
43.8% 39.3%
40.3% 41.8%
38.2% 44.2%
36.6% 43.1%
EPS ($) - Basic
1.06
0.67
1.05
1.57
1.46
1.69
1.98
1.97
1.94
EPS ($) - Diluted
1.06
0.67
1.04
1.55
1.44
1.68
1.97
1.96
1.93
NAV ($)
7.31
6.72
7.18
14.32
13.21
14.14
16.18
14.88
15.90
NAV ($) - Revalued
9.23
8.21
8.75
14.21
13.12
14.04
18.80
17.23
18.57
14.80
9.90
14.90
11.00
10.90
12.30
12.50
13.10
12.40
1.27 0.7% 14.7% 14.7% 17.4%
0.92 0.7% 14.9% 14.9% 16.8%
1.27 0.7% 14.4% 14.4% 15.6%
0.93 0.9% 13.5% 13.5% 15.7%
0.94 1.2% 12.9% 12.9% 15.5%
1.02 1.0% 13.1% 13.1% 15.3%
1.10 1.2% 13.9% 13.9% 17.8%
1.17 1.2% 13.6% 13.6% 17.2%
1.10 1.1% 14.0% 14.0% 17.7%
. 6% 14% 6% 14% 15% 11% 25% 9%
7% 15% 6% 14% 14% 10% 25% 8%
6% 14% 6% 14% 16% 11% 24% 9%
8% 17% 12% 6% 21% 8% 19% 8%
8% 17% 14% 4% 20% 7% 20% 10%
8% 17% 12% 6% 21% 8% 19% 9%
5% 13% 9% 16% 13% 13% 27% 4%
4% 12% 9% 15% 12% 14% 28% 4%
4% 13% 9% 16% 12% 13% 27% 5%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Total Assets Loans Deposits Loans to Deposits
Net Interest Margin (%) Non-interest Income / Total income Cost to income (%)
ROE (%) ROA (%) NPL ratio (%) CET1 (%) Tier 1 Capital (%) Total CAR (%) Loans Breakdown: Tpt, Storage & Comm Building & Construction Manufacturing Non-bank fin institutions Gen commerce Prof & pte individuals Housing loans Others Total Sources: Company & OIR
2
OCBC Investment Research Singapore Equities
Company financial highlights
Income statement Year ended 31 Dec (S$m)
FY12
FY13
FY14F
FY15F
Interest Income Interest Expense Net Interest Income Non-interest Income Fee & Com Income Staff Costs Other Operating Expenses Impairment Pretax profits Net profits
6,202 2,285 3,917 2,578 1,508 -1,597 -1,151 -476 3,351 2,803
6,508 2,388 4,120 2,601 1,731 -1,712 -1,186 -429 3,585 3,009
7,100 2,582 4,518 2,846 1,811 -1,853 -1,461 -587 3,580 3,040
7,406 2,702 4,705 3,074 1,989 -1,992 -1,545 -497 3,877 3,263
FY12
FY13
FY14F
FY15F
5,272 19,810 25,274 203,566 9,689 227,626 33,056 152,930 9,334 252,900
5,333 21,056 26,578 228,253 9,382 257,651 26,881 178,857 9,280 284,229
5,863 22,395 28,569 240,453 9,663 274,930 28,494 194,954 9,605 303,498
5,863 23,957 30,148 253,326 9,953 289,397 29,349 206,651 9,941 319,545
FY12
FY13
FY14F
FY15F
3,748 121 -530 6,933 6,340 -68 -49 5,897 22,396 28,293
3,822 130 -56 -11,117 -11,695 -71 6,293 -5,729 28,293 22,564
4,049 130 -50 1,425 902 102 3,406 4,077 22,564 26,641
4,242 130 -50 1,658 1,065 104 -94 656 26,641 27,297
FY12
FY13
FY14F
0
1.75 14.56 6.5 27.6 60.3 42.3 13.2 1.6 3.0 11.7
1.88 15.36 5.2 0.9 61.3 43.1 12.3 1.5 3.3 11.7
1.90 17.84 9.7 9.4 61.4 45.0 12.1 1.3 3.3 11.1
2.04 18.83 4.1 8.0 60.5 45.5 11.3 1.2 3.3 11.2
Balance sheet As at Dec 31 (S$m) Share capital Revenue & other reserves Shareholders' fund Deposits and other accounts Other liabilities Total liabilities Cash and balances Loans & advances Other assets Total assets
Cash flow statement Year ended 31 Dec (S$m) Pretax profits Depreciation Others Changes in working capital Net cash from operating activities Net cash in investing activities Cash flow from financing activities Change in cash Beg cash Cash at end of year
Year ended 31 Dec (S$m) EPS (S$) NAV per share (S$) Net interest income growth (%) Non-interest income growth (%) Interest Inc / Total Inc (%) Cost-to-income (%) PER (x) Price/NAV (x) Dividend yield (%) ROE (%) Sources: Company, OIR forecasts
Company financial highlights
OCBC Investment Research Singapore Equities
SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds/hold NIL shares in the above security.
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RATINGS AND RECOMMENDATIONS: - OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIR’s BUY rating indicates a total return in excess of 10% based on the current price; a HOLD rating indicates total returns within +10% and -5%; a SELL rating indicates total returns less than -5%.
Co.Reg.no.: 198301152E
Carmen Lee Head of Research For OCBC Investment Research Pte Ltd
Published by OCBC Investment Research Pte Ltd
Published by OCBC Investment Research Pte Ltd Important disclosures
