UOB

UOB: poor 3Q11 results.
Net profit of $522m, -18% qoq, -24% yoy, vs consensus of $607m.
The disappointment came from much weaker non-interest income due to weak fee & commission, and trading & investment incomes.

During the quarter, BVPS declined $0.31 or 2.4% qoq, owing to the recognition of $492m marked-to-market (MTM) losses on AFS securities. Exposure to European papers was cut to $2.1b (Jun: $2.6b), comprising $1.2b bank papers (Jun: $1.5b) and $0.9b non-bank papers (Jun: $1.1b).
NPLs rose to $2.11b (Jun: $1.93b) due to a prudential move to classify certain loan portfolios from UK, US, EU and Australia in view of the global economic weakness.
Note that the impact of MF Global’s bankruptcy on UOB, if any, would likely not have been accounted for in this set of results.

NIM declined to 1.89% (-3bp qoq; -18bp yoy).
Mgt rebalanced its portfolios toward higher-yielding customer loans and away from low-yielding interbank loans and securities. 3Q11 loans +7.1% qoq and +28.5% yoy, led by regional markets (+13% qoq; +41% yoy), while Singapore was +5.3% qoq and +19.4% yoy. The strong pipeline should support loan growth until 1Q12 before moderation, as approvals fell significantly in 3Q11 (on tighter approval criteria). UOB hopes to achieve single-digit to low-teens loan growth in 2012, down from the high-teens to twenties loan growth achieved ytd.

Given that the stock has outperformed domestic peers ytd, UOB’s share price may react more strongly to this earnings miss. OCBC shares are down 16% so far this year, vs DBS -13%, and UOB -8%.
Deutsche lowers TP to $19 from $20, has Hold rating.
Credit Suisse, Citi have Neutral rating with TP $19.30 and $17.70 rptvly.
Stock trades at 1.3x P/B.