United Overseas Bank (UOB SP) Analysis
Broker: Maybank Research Pte Ltd
Date: February 19, 2025
The latest report from Maybank Research provides a comprehensive analysis of United Overseas Bank (UOB SP), highlighting its financial performance, strategic positioning, and outlook for the future. The report maintains a bullish “BUY” recommendation for the bank, suggesting a target price of SGD 44.32, reflecting a potential upside of 15% from its current price of SGD 38.58.
Financial Performance Overview
UOB has exceeded market expectations for FY24, showcasing a recovery in loans and resilient fee income. Despite facing margin pressure due to Fed rate cuts, UOB’s integrated ASEAN strategy is expected to catalyze growth in both fees and credit, which is pivotal for diversifying its loan book toward sectors with better credit quality. The report indicates that management is guiding for high single-digit loan growth, with a forecasted expansion of 6.5% YoY in FY25E, presenting an optimistic outlook for the bank.
Margin Pressure and Net Interest Income (NII)
In the fourth quarter of FY24, UOB’s Net Interest Margins (NIMs) fell by 5 basis points QoQ, primarily due to the Fed rate cuts. Management has indicated that the lower-cost CASA (current account savings account) mix has improved from 48.9% to 54.6% compared to the previous year, providing some downside support. However, with an exit NIM of 2.0% for 4Q24, the bank has adjusted its FY25-26E NII projections down by 8-12%. The report emphasizes that while margins may be under pressure, the robust growth in loan volumes and fees, particularly in Wealth Management (WM), provides a buffer against these challenges.
Wealth Management and Non-Interest Income (NoII)
UOB’s Wealth Management product has shown resilience, with fees only declining by 2.7% QoQ in 4Q24. The management is also rolling out a private wealth platform, which is expected to enhance upgrade risks and drive growth in NoII. The report has revised its FY25-26E NoII upward by 8-13%, reflecting the bank’s confidence in its wealth management strategies.
Strategic Advantages of Integrated ASEAN Operations
The report underscores the strategic advantage of UOB’s integrated ASEAN platform, which delivered 26% of wholesale banking income through cross-border connectivity. The bank’s trade loans, which present higher fee opportunities, grew by 20% YoY. However, loan and trade-related fees only increased by 4% YoY, indicating room for further cross-selling opportunities. The ongoing US-China trade war is also accelerating corporate shifts to ASEAN, positioning UOB favorably as many relocating firms have fewer entrenched banking relationships, thus opening avenues for UOB to capture market share.
Capital Management and Return on Equity (ROE)
UOB is notably returning SGD 3 billion in capital through SGD 1 billion in special dividends and the remainder via share buybacks, which translates to a 3% EPS accretion. Management anticipates that UOB’s FY25-27E ROEs could be at least 3 percentage points higher than the past decade’s average, justifying a higher valuation for the bank. The report expresses confidence that a structurally higher ROE should drive increased valuations over time.
Target Price Adjustment and Investment Outlook
Given the positive financial trajectory and strategic advantages, Maybank Research has raised its target price for UOB to SGD 44.32. This target reflects a price-to-book (PB) ratio of 1.5x, which remains below the long-term mean, further supporting the “BUY” rating. The report concludes with the assertion that UOB’s comprehensive strategies and robust financial performance position it well for sustained growth and value creation in the future.
Key Financial Statistics
- Current Share Price: SGD 38.58
- 12-Month Price Target: SGD 44.32 (+15%)
- Market Capitalization: SGD 64.8B
- Issued Shares: 1,681 million
- Net Interest Income FY24: SGD 9,674 million
- Core Net Profit FY24: SGD 6,233 million
- Gross Loans Growth FY25E: 6.5%
- Net Dividend Yield FY25E: 6.4%
Overall, UOB is positioned favorably for growth in the coming years, driven by its integrated ASEAN strategy, resilient fee income, and strong capital management.
