UOB posts 8% rise in Q1 profit to S$1.05b on stronger income growth

Singapore

UNITED Overseas Bank (UOB) on Friday reported higher net profit for its first quarter of 2019, up 8 per cent to S$1.05 billion, from S$978 million for the year-ago period.

Earnings per share was S$2.47 for the three months ended March 31 versus S$2.28 for the year-ago period. No dividend has been declared for the quarter.

Total income rose 8 per cent to S$2.41 billion from S$2.23 billion previously, led by a recovery in trading and investment income, and healthy loan growth as macro conditions stabilised and financial markets rebounded.

Net interest income also increased 8 per cent to S$1.59 billion on the back of broad-based loan growth of 12 per cent, which was partially offset by net interest margin compression of five basis points to 1.79 per cent.

Net fee and commission income declined 7 per cent to S$479 million due to lower wealth management and fund management fees as market sentiment was more subdued compared with a year ago. UOB added that this was partially offset by higher loan-related and credit cards fees, which grew 9 per cent and 7 per cent, respectively.

Its group retail business saw pretax profit increase by 1 per cent to S$471 million from S$466 million. Total income grew 4 per cent to S$1 billion from S$963 million, driven by net interest income from deposits and loans growth and increased deposit margin. This was offset by lower fees from wealth management products.

Expenses increased 9 per cent to S$494 million, mainly due to continued investments in digitalisation and headcount for franchise growth.

As at March 31, 2019, the group's common equity tier 1 CAR (capital adequacy ratio) - its available core capital as a percentage of its risk-weighted credit exposures - was 13.9 per cent, down 1 percentage point from the year-ago period.

The group's leverage ratio of 7.6 per cent was more than double the regulatory minimum requirement of 3 per cent. It said it "remains well capitalised to navigate the macro uncertainties ahead".

"We started 2019 with strong quarter earnings, underpinned by our continued focus on our fundamentals and prudence in managing our business," said Wee Ee Cheong, UOB's deputy chairman and chief executive officer.

"This discipline is key especially when the macro environment remains uncertain due to the slowing global economy and ongoing trade tensions.

"Our steadfast approach to ensuring continued sustainable growth has seen strong investor support, which was also recently reflected in their response to our debut Panda bond and US dollar-denominated subordinated notes issuances."

Carmen Lee, head of research at OCBC Investment Research, said UOB's S$1.05 billion net profit was slightly higher than consensus estimates of S$1 billion.

"UOB's share price has done well so far this year, up 13.3 per cent YTD (year-to-date)," said Ms Lee. "It is up 11.4 per cent since our last report on March 26, 2019."

Management's tone was fairly cautious, with plans for single-digit loan growth for fiscal 2019, similar to DBS, Ms Lee added.

OCBC Investment Research has revised its fair value price for UOB to S$28.90 from S$28.30, but has downgraded the stock to 'hold' from a 'buy' due to valuation even as it finds UOB's 4.3 per cent dividend yield attractive.

UOB's positive results follows in the footsteps of DBS Group Holdings earlier in the week, but IG market strategist Pan Jingyi noted reactions may be limited after the surge across the sector post-DBS Q1 results.

UOB shares closed down 0.29 per cent, or S$0.08, at S$27.77 on Friday.

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