UOB

UOB: 4Q12 headline beat, but underlying weaker as NIMs disappoint again. Net profit at $696m, -2% qoq, +25% yoy, beat Bloomberg consensus of $614m, driven by wealth mgt fee income, and tax writebacks that more than offset higher-than-expected loan provisions. Like other SG banks, loan growth retraced to ~8% from >20% in FY11, as demand for trade financing fell in 2H12, while Singapore mortgages remained at a healthy +14% yoy. Outside SG, Msia (+13%) grew above the industry avg of 10% while Indonesia was relatively slow at +10%. Similar to peers, NIM fell 7bps qoq due to continued flush liquidity (LDR ratio fell to 85.5% in Dec from 87.5% in Sep) and a one-off shortening of bond portfolio’s duration. Fees and commissions advanced 19% yoy to $388m, led by income from fund mgt and invmt-related services. Other non-interest income jumped 38% to $238m on gains from the sale of securities. Mgt maintained its guidance of high single-digit loan growth for FY13e, driven by good momentum in core markets. However margins are likely to remain under pressure with continued excess liquidity in the system. This should be partly mitigated by the recent improvement in mortgage rates. Asset quality is expected to remain stable but mgt is monitoring for possible signs of stress in its SME/mortgage portfolio The bank announced a div of $0.40, along with special div of $0.10, bringing payout ratio to 39% for the year. Full yr div of $0.70 translates to a yield of 3.6%. Nomura keeps at Buy with TP $22.60. Credit Suisse maintains Neutral with TP $20. HSBC downgrades to Neutral from overweight, with TP $19.65.