Generated higher-than-expected 1Q earnings of S$722m
In line with the other two banks, UOB Group posted 1Q13 net earnings which also exceeded street expectations. 1Q net earnings of S$722m were up 5% YoY and 4% QoQ and ahead of consensus of S$688m based on Bloomberg poll. While Net Interest Income fell 4% YoY and flat QoQ to S$964m, its overall performance was buoyed by higher Non-Interest Income, which rose 12% YoY and 13% QoQ to S$708m. Together with lower operating expenses, this gave its operating profit a boost to S$976m. Net Interest Margin (NIM) fell from 1.98% in 1Q12 and 1.76% in 4Q12 to 1.70% in 1Q13. Loans grew a healthy 7.4% from last quarter to S$167b. Impairment charge fell QoQ from S$150m to S$130m.
Double-digit growth in Fee Income
The key highlight was the strong 17% QoQ or 25% YoY increase in Fee and Commission Income to S$453m in 1Q13. On a QoQ basis, several units enjoyed strong double-digit growth. This included loans (+63%), fund management (+19%) and Investment (+18%).
Downgrade to HOLD; FV raised to S$22.97
The outlook for NIM is still mixed and likely to hover at current level. Overall, we expect its FY13 performance to be supported by higher fee income, with growth rate for Non-Interest Income doubling that of Net Interest Income. We do not expect a repeat of the strong 1Q13 Fee Income for the remaining three quarters of the year. Taking these into consideration, we made very slight adjustments to our FY13 earnings projection, dropping it from S$2900m to S$2885m. Based on the recent historical average P/B of 1.5x (FY2011-12) and our estimated FY13-14 book, our fair value estimate moves up from S$21.30 to S$22.97. While we continue to like UOB for its good cost controls and strong quarterly performance, the stock has outperformed and appreciated some 11% YTD. It is now trading close to our fair value estimate. As such, we downgrade our rating to HOLD on purely valuation grounds.
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