Milder NIM compression
- UOB recorded 2Q23 core net profit of S$1.51bn (-4% qoq, +33% yoy), in line with our estimate but 10% above consensus.
- NIM held up better than expected while non-II beat estimates from gains from investment in securities. Credit cost was higher than expected.
- UOB cut guidance for fees (to high single-digit from double-digit in FY23F) and said credit costs should trend at 25bp for the rest of 2023 (vs. 20-25bp).
- Read-through to peers: NIM could improve and pre-emptive provision for credit cost could be a trend. 1H23 interim DPS was 85 Scts (1H22: 60 Scts).
- Expect positive share price reaction. Reiterate Add and TP of $33.30.
In line; downward revision of fee income; pre-emptive credit cost
? UOB recorded 2Q23 core net profit of S$1.51bn (-4% qoq, +33% yoy). This was in line with our estimate but 10% above consensus expectations. 1H23 formed 51%/55% of our/consensus full-year forecasts.
? 2Q23 NIM contracted a smaller 2bp qoq to 2.12% (1Q23: -8bp qoq) as liquidity surplus was deployed into high quality lower yielding assets. NII stayed stable amid the flattish c.1% qoq loan growth in 2Q23.
? Fee income dipped 5% qoq (-8% yoy) on the back of softer wealth management fees (cautious investor sentiment) and weaker loan-related fees. Credit card fee momentum also eased in 2Q23. Trading and investment income sustained its robust performance (stable qoq, +123% yoy) on the back of resilient
customer-related treasury income (supported by hedging demand) and good performance in trading and liquidity management activities.
? Opex was stable qoq (+22% yoy). Adjusting for one-off Citi integration costs (S$92m), CTI stood at a stable 40.9% in 2Q23 (1Q23: 40.9%). On balance, PPOP held steady at S$2.1bn in 2Q23 (+38% yoy).
? Total impairments came in at S$365m or 30bp in 2Q23. This was largely due to a major corporate account in Thailand as well as management overlays on its general allowances. Specific provisions came up to 26bp in 2Q23; the rest were general provisions.
CEO’s 2023F outlook
? Low to mid-single digit loan growth (no change).
? Margins to remain stable at current levels (no change).
? High single-digit fee growth (from double-digit previously).
? Disciplined cost management (one-time costs from Citi acquisition to substantially roll off by end-23).
? Credit costs at around 25bp for the rest of FY23F (from 20-25bp previously).
Reiterate Add and GGM based TP of S$33.30
? We project positive share price reaction given the beat vs. Bloomberg consensus. Its earnings briefing will be held this morning.
? Drastic Fed rate cuts are a key downside risk. Sustained risk-off sentiment, suppressing wealth management investment appetite is an additional downside risk. A quicker integration of and therefore earlier revenue contribution from Citi is a re-rating catalyst.
