UOB's Corporate Day Highlights the Bank's FinTech Investments and IT Capabilities

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Equity Bottom-Up

Higher expected loan growth, improving margins in Singapore, and good fee income growth underpinned narrow-moat-rated United Overseas Bank's, or UOB's, solid quarterly result. Net profit was up 5% on last quarter to SGD 883 million, or 12% on the year-ago period. We lift our full-year loan growth assumption to 5.5% from 4.5% to reflect the higher-than-expected loan growth, and accounting for the time value of money, our fair value estimate increases to SGD 25.60 from SGD 24.00 previously. With shares trading at a 3% discount to our new fair value estimate, the bank is fairly valued. The discount is narrower than that for peer OCBC, and we attribute this to UOB's more defensive earnings relative to peers, owing to its greater exposure to its core market of Singapore. There is no change in our long-term view on the bank, and we do not see the retirement of long-time Chairman Emeritus Wee Cho Yaw affecting the bank's operation. We reiterate our view that the bank has a diverse platform across multiple geographies to capture regional growth. Management cited this as a reason for the possible divestment of its stake in Hengfeng Bank in China. It also makes sense from a capital perspective, as the minority stake attracts high capital charge, and we believe the capital can be more efficiently applied elsewhere.Net interest income increase was strong at 3.8%, supported by improving net interest margin for its core Singapore business and loan growth. Overall loan growth increased 2.8% on last quarter, bouncing back from a weaker second quarter. This was driven by mortgages and manufacturing loans, with the bank competing more aggressively in the former as sentiment in the residential property market continues to improve, and given the low-risk nature of mortgages relative to corporate loans. We revise our 2017 loan growth assumption to 5.5% from 4.5% and expect similar quarterly growth in the fourth quarter as in the third quarter.Analyst: Michael Wu, CAIA

Higher expected loan growth, improving margins in Singapore, and good fee income growth underpinned narrow-moat-rated United Overseas Bank's, or UOB's, solid quarterly result. Net profit was up 5% on last quarter to SGD 883 million, or 12% on the year-ago period. We lift our full-year loan growth assumption to 5.5% from 4.5% to reflect the higher-than-expected loan growth, and accounting for the time value of money, our fair value estimate increases to SGD 25.60 from SGD 24.00 previously. With shares trading at a 3% discount to our new fair value estimate, the bank is fairly valued. The discount is narrower than that for peer OCBC, and we attribute this to UOB's more defensive earnings relative to peers, owing to its greater exposure to its core market of Singapore. There is no change in our long-term view on the bank, and we do not see the retirement of long-time Chairman Emeritus Wee Cho Yaw affecting the bank's operation. We reiterate our view that the bank has a diverse platform across multiple geographies to capture regional growth. Management cited this as a reason for the possible divestment of its stake in Hengfeng Bank in China. It also makes sense from a capital perspective, as the minority stake attracts high capital charge, and we believe the capital can be more efficiently applied elsewhere.Net interest income increase was strong at 3.8%, supported by improving net interest margin for its core Singapore business and loan growth. Overall loan growth increased 2.8% on last quarter, bouncing back from a weaker second quarter. This was driven by mortgages and manufacturing loans, with the bank competing more aggressively in the former as sentiment in the residential property market continues to improve, and given the low-risk nature of mortgages relative to corporate loans. We revise our 2017 loan growth assumption to 5.5% from 4.5% and expect similar quarterly growth in the fourth quarter as in the third quarter.Analyst: Michael Wu, CAIA

UOB Posts Another Solid 3Q Result; FVE Increases to SGD 25.60