- UOB net profits came in at S$602mn, higher than our expectations of S$572mn and closer to consensus of S$610mn. The details were less promising, with beat largely due to higher income from associate (up 90% q/q, largely one-time) and lower tax rate of 16%. PPOP of S$726mn was 7% below our estimates. We expect stock to trade lower following these results.
- UOB emphasised its regional franchise and admitted that the Singapore market is mature and competitive. Its S$ loan market share appears to be slipping as its S$ loans only expanded 2.3% qoq in a quarter when system loans grew 3.6% qoq. Much of the loan growth came from regional markets with Malaysia, in particular, appearing to have done very well. Management sees revenue opportunities in regional loan growth and fee-based income.
- Balance sheet strength remains the key positive for UOB. We think UOB offers the strongest balance sheet in the sector. In particular, collective provision coverage appears to present a substantial earnings buffer for future periods. The $57m 2Q10 collective provision top up ($77m 1Q10) saw coverage remain broadly flat, implying a $250m surplus to the last cyclical trough (1Q08). Going forward, we expect UOB credit costs to remain very low, as reflected in our forecast.
Ratings: From HOLD to OUTPERFORM with target price from S$19.40 to S$23 from 11 Brokerage Firm
Source: CIMB, CL, CSFB, DAIWA, DB, DBS, GS, JPM, KIM ENG, OCBC, UBS
