Broker's take: PhillipCapital upgrades UOB to 'buy' on strong loans growth, wealth management fees

PHILLIPCAPITAL has upgraded United Overseas Bank (UOB) to "buy" from "accumulate", with a target price of S$29 after the bank posted a Q4 2017 profit after taxes and minority interests (Patmi) of S$855 million, in line with the broker's estimate.

UOB's shares have seen a 52-week high of S$28.46 and low of S$21.01.

UOB posted loans growth of 5 per cent year on year, with net interest margin expanding yearly by 12 basis points.

The bank's manufacturing and financial institution loans saw "strong double-digit loans growth", PhillipCapital said. Housing loans growth was steady at around 6 per cent on a yearly basis.

Contribution from the high net worth (HNW) segment helped wealth management fees grow by 29 per cent yearly, PhillipCapital said.

Total wealth management income from the HNW segment saw full-year growth of 35 per cent in 2017, compared with 12 per cent growth from the mass affluent segment, according to the broker.

UOB's reduced exposure to the upstream oil and gas sector also helped, falling to S$3.8 billion for Q4 2017 from S$4.3 billion for the third quarter.

New non-performing assets (NPA) formation increased to S$1.2 billion for Q4 2017, compared to S$0.8 billion for Q3 2017 as more oil and gas exposure was cleaned up.

However, PhillipCapital cautioned that loss-making UOB Indonesia continues to be a drag as expenses continue increasing, and allowances needed to conform to regulatory changes in the classification of non-performing loans remain elevated.

UOB's shares were trading at S$27.66 apiece on Wednesday, up S$0.44 or 1.62 per cent as at 4.36pm.