Playing it safe* **By Joan Ng * Rounding off the results of the banks, United Overseas Bank released its earnings this morning. For FY2011, the company saw a 3.5% increase in total income to $5.7 billion. Core net profit after tax, however, was down 4.1% to $2.3 billion. For 4Q2011, income rose 6.4% y-o-y while core net profit after tax was up 0.8%.
The results were more or less in line with analyst estimates but were hurt somewhat as UOB took a more conservative stance. For instance, the bank has significantly reduced its exposure to Europe. In his report, Kim Eng analyst Desmond Ch’ng notes that total exposure to European investment securities at the end of December stood at $1.6 billion or 7% of shareholders’ funds. This is down from $2.6 billion at the end of June, or 12% of shareholders’ funds. The reduction has been achieved mostly through disposals of bank investment securities as well as CDS protection. DBS Vickers analyst Lim Sue Lin also points out that 4Q11 net profit was dragged down by higher provisions for its available-for-sale portfolio, on prudent grounds. And, loan growth moderated to 3% q-o-q even as deposit growth accelerated to 7% q-o-q. Lim says this is in line with the bank’s emphasis on solid funding. “As a result, loan-to-deposit ratio was lower at 83%, below peers,” Lim says. In his presentation, Wee Ee Cheong, deputy chairman and CEO, seemed to emphasise UOB’s stronger and well diversified balance sheet. The customer deposit base has grown from 67% to 72%. Interbank funding, on the other hand, has been reduced. Meanwhile, the company is rebalancing its customer risk profile towards a greater emphasis on Asia. Analysts seem to have picked up on the same thing. Nomura analyst Anand Pathmakanthan, in a report, writes that although UOB’s results were 3% below his expectations, the result was one of quality. “The provisioning drag appears prudential in nature,” he says, noting that fully 15% of the European loan book is classified as non-performing loans and provided for. “Earnings miss has been due to conservative provisioning principles rather than a systemic asset quality issue.” The debt problems of Greece have surfaced in the results of the European banks, with the sector reporting heavy losses in the current earnings season. *Credit Agricole* CEO Jean-Paul Chifflet was quoted as saying that this represented “the worst economic crisis since 1929.” The bank reported a record quarterly net loss of €3.1 billion ($5.2 billion). So perhaps it is just as well that Wee is being conservative. In fact, UOB has long enjoyed a reputation as being a conservative and well-managed bank. For this, its shares outperformed peers *DBS Group Holdings* and *Oversea-Chinese Banking Corp* last year. Will this outperformance continue given the currently difficult climate? Some analysts are sceptical. JPMorgan analyst Harsh Modi expects the stock to be range-bound. “A combination of persistent low rates, turbulent (but stabilising) macro and fast pace of balance sheet growth in last two years will limit return on equity expansion in 2012-13,” Modi says. But Macquarie analyst Matthew Smith is maintaining his “outperform” call. “The apparent year-end clean-up should mean less concern over UOB’s securities’ asset quality going forward,” Smith says. However, in the coming quarters, if the losses among Europe’s banks worsen, more banks may follow in UOB’s footsteps. On Fri, Feb 24, 2012 at 4:33 PM, rohan shukla <[email protected]>wrote: > > Macquarie on Sterlite Industries: Outperform with a target of 149 > > The management has highlighted its intent to resolve equity holding of > Vedanta by March 2012. Dual listing structure in offing. Expected structure > reduces risk for Sterlite. Merger ratios scenario analysis indicates > Sterlite is well below worst case. > CLSA maintains buy on Cairn India, revises target to 460 > > Expect Cairn to work to redefine the Rajasthan block vision. Cairn is > among the five cheapest Nifty stocks. 15-30% cheaper than Asian peers on > March-13 earnings. > > -- > Rohan Shukla, > Stag Investor cum Trader > > -- CA. Rajesh Desai -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
