UOB share price: revisiting key fundamentals ahead of Q4 results

We examine four vital stats before United Overseas Bank releases its fourth quarter earnings later this week.

When is UOB’s Q4 FY2019 results out?

United Overseas Bank Limited (UOB) will be releasing its fourth quarter financial results for the 2019 fiscal year before the market opens on Friday 21 February.

UOB was set up in 1935 and is now the third largest bank by assets in Southeast Asia. It is also Singapore’s third largest bank by market capitalisation at S$43.37 billion.

Having started out as United Chinese Bank, UOB was renamed in 1965 and now has over 500 offices across 19 countries and territories.

COVID-19: ‘adverse impact’ on UOB and other banks

Analysts from RHB Invest have downgraded their ratings on UOB’s stock from ‘buy’ to ‘neutral’, as well as their share price targets from S$29.50 to S$25.80, based on concerns around the coronavirus’ impact on the bank’s operations in China. The price target revision represents a 12.5% decline.

‘Economic disruption from the coronavirus outbreak is expected to adversely impact Singapore banks’ operations not just in Greater China, but also Singapore – the tourism sector is one example.

‘We downgrade our ROE expectation to 11.6% (from 12.7%). FY2020 earnings are also cut by 3% as we assume slower loan expansion and higher provisions,’ the analysts wrote in a note.

However, the impact could potentially be dampened, after Singapore Finance Minister Heng Swee Keat announced a S$5.6 billion financial stimulus package to assist all local enterprises and workers affected by the virus outbreak, in his Singapore Budget 2020 speech on 18 February.

It remains to be seen if UOB would address the assistance provided by the Singapore government in its FY2020 guidance, but some negative impact is to be expected with Greater China constituting 16% of UOB’s loans.

Pay attention also to the lender’s earnings per share (EPS) this quarter, as its Q3 EPS did trend downwards, with adjusted EPS coming in at S$2.61, a fall of 4.74% from the S$2.74 achieved in the previous quarter.

Better-than-expected Q3 FY2019

Still, despite all the geopolitical and socioeconomic tensions in the three months ended September 2019, UOB managed to turn in a profitable third-quarter overall, even marginally surpassing market estimates.

The group had posted a stronger-than-expected third-quarter in its last financial report, recording an 8% year-on-year growth in net profit of S$1.12 billion for the quarter. This was above the S$1.07 billion average estimate made by Bloomberg analysts.

Return on equity had also increased slightly to 11.9% this quarter from 11.6% a year ago.

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Higher net earnings for first nine months of FY2019

If the first nine months of 2019 are any indication, it seems that UOB is on track to achieving another quarter and full year of growth.

Besides slightly beating industry predictions, the bank also recorded an 8% rise in net earnings to S$1.12 billion for the first three quarters of the fiscal year.

This is despite the fact that total expenses increased a significant 14% to S$1.15 billion over the same period in 2018, with cost-to-income ratio at 44.2%.

Considering this, it was even more remarkable that UOB was able to maintain its annual growth momentum, even surpassing that of 2018. The bank attributed this to stronger client franchise income as well as trading and investment income.

The financial institution said that it has also been able to maintain a stable balance sheet position, thanks to a diversified funding position and strong capital base. Loan-to-deposit ratio clocked a healthy 89.3%, while Common Equity Tier 1 ratio stayed robust at 13.7%.

The topline of the respective business units for the first nine months of 2019 also saw a steady upward trajectory.

All business segments continued to deliver strong income growth, starting with Group Retail, which saw income rise a solid 8% to S$3.19 billion, due to higher net interest income from volume growth and improvement in deposit margin, coupled with higher treasury and wealth income.

Financial outlook for Q4 FY2019 and FY2020

Commenting on the bank's third-quarter results, Deputy Chairman and Chief Executive Officer Wee Ee Cheong had noted: ‘We kept up the growth momentum across our revenue streams despite the global economic slowdown. We also maintained a healthy balance sheet with sound asset quality and robust capital and liquidity positions.’

Furthermore, despite US-China trade tensions last year, Wee expressed optimism about the bank's roadmap and future.

‘Looking ahead, we expect business sentiment to be weighed down by global economic headwinds. However, our regional footprint positions us well to capture the continuing investment flows as businesses diversify their supply chains into the region amid the ongoing trade tensions.

‘Our newly-opened branches in Hanoi, Vietnam and Zhongshan, China have added to the connectivity we offer to our customers across Southeast Asia and China. Our sound balance sheet will enable us to support our customers through the uncertain operating environment and to continue investing in our people and capabilities for sustained growth,’ he had said.

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