UOB

UOB: 2Q results were in line with consensus with net profit +5.6% yoy (+3.9% qoq) to $636m, lifted by surging loans (+23.9%), esp to non-financial insti (+53%) & in Greater China (+51%). The stronger performance on loans mix helped boost NIM vs peers to 1.92% but this came at the expense of higher LDR of 87% as deposit growth did not keep up (+18%).

Overall, net interest income grew 3.3% while non-interest income soared 37.2% but declined 4.9% from the 1Q. Operating expenses were well contained although staff cost went up 14.5%, reflecting the tight labour market & expanded headcount.

Provisioning charges of $96m gave rise to flat NPL ratio of 1.5% with loan-loss coverage of 140.5%. Tier-1 CAR remained in good shape at 14.5% albeit slihghtly below 1Q’s 14.9%

With GDP growth losing momentum, all 3 local banks are expecting loans growth to moderate in 2H11, which might affect net interest income as interest rates are unlikely to rise near term. The volatile equity & currency markets are likely to make trading income very unpredictable & dampen capital market-related fees.

We see no near term catalysts amid the uncertainties. UOB is currently trading at P/B of 1.46x vs historical mean of 1.53x. This compares to DBS P/B of 1.18x (vs 1.45) & OCBC 1.55x (vs 1.64x).