UOB Earnings: Results in Line; Continue to Expect Citi Integration to Support Medium-Term Growth

Narrow-moat United Overseas Bank reported in-line fourth-quarter and full-year results. However, the share price reacted negatively after the results announcement, which we think was due to slower loan growth guidance of around 2% for 2024 on a sluggish economic outlook. The intense competition for high-quality corporate loans and mortgages also adds pressure on asset yields, as reflected in the lower fourth-quarter net interest margin of 2.02% from 2.09% in the third quarter. As interest rates are likely to remain elevated in the first half, we expect funding costs to continue to pressure NIM. We lower our 2024 loan growth assumption to 3% from 5% and reduce our NIM outlook to 2.0% from 2.05% given the updated guidance. As such, our 2024-26 operating income forecast falls 3%-4%, but we maintain our SGD 36 fair value estimate. Our expected return on equity of 12.3% is minimally changed. UOB trades at a 2024 price/book of 1.22 and price/earnings of 10.2 times, which is reasonably attractive. We forecast a 2024 dividend per share of SGD 1.76, representing a dividend yield of 6.2%. However, given similar growth projections, we prefer DBS, which we think has more capital flexibility to lift dividends.