Company Reports

We maintain our fair value estimate of SGD 38 per share for United Overseas Bank, 18% above the current share price and around 1.4 times the 2024 book value. The second-quarter annualized return on equity came in at 12.0%, which is close to UOB’s recent average and slightly above our estimate of its cost of equity. Annualized credit costs were slightly elevated at 29 basis points of loans, but when combined with the 21 basis points recorded in the first quarter, they remain in line with our full-year forecast of 25 basis points. Some of the rise in credit costs in the quarter was related to UOB’s integration of the former Citi business in Thailand, as loans extended by the former Citi became subject to UOB’s credit classifications, and are, therefore, one-off or may be later reversed. We maintain our existing forecasts.

Narrow-moat United Overseas Bank reported a mild 2% year-on-year drop in first-quarter net profit, beating market consensus on higher noninterest income, but in line with our expectations. Net interest margin is stable quarter on quarter at 2.02%. Management expects to hold NIM above 2% for the rest of the year as interest rates are higher for longer, which should bring net interest income back to growth for the full year, compared with a 2% year-on-year drop in the first quarter. We edged up our 2024 NIM assumption to 2.02% from 2.00%, as we see less pressure on loan yield, and a higher mix of low-cost current and savings account deposits should support NIM in the second and third quarter, before the impact of US Federal Reserve rate cuts comes through in the second half of 2024. This lifts our 2024 net profit growth forecast to 4.7% from 3.0% previously. We also lowered our midcycle cost/income ratio assumption as the bank aims to bring it down to around 40% by 2026. As such, we raise our 2026 earnings forecast by 5% and lift our fair value estimate for UOB to SGD 38 per share from SGD 36.

United Overseas Bank is one of the three dominant banks in Singapore. It has local subsidiaries or branches in almost every country in the Asia-Pacific region, particularly across the Association of Southeast Asian Nations. Singapore accounts for around 60% of its profit, Greater China around 10%, Malaysia around 10%, Thailand around 5%, and Indonesia around 2%. In late 2022 and early 2023, UOB closed the acquisition of Citi’s consumer business (wealth management and retail deposits) in Malaysia, Thailand, and Vietnam. It also agreed to buy the US bank’s consumer businesses in Indonesia, with the transaction closing in 2023. These acquisitions are temporarily increasing UOB’s costs but also should raise its net interest margin somewhat, as the bank becomes less dependent on Singapore and more geared to emerging markets where loan rates tend to be higher. In Singapore, UOB’s loan book is more heavily weighted toward small to midsize loans than its peers, which are generally more vulnerable to an economic downturn relative to corporates. However, UOB has more than adequate capital and provisions and can continue to pay out half of its earnings to shareholders in dividends while investing in growth across ASEAN, in our view.

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.

United Overseas Bank is one of the three dominant banks in Singapore. It has local subsidiaries or branches in almost every country in the Asia-Pacific region, particularly across the Association of Southeast Asian Nations. Singapore accounts for around 60% of its profit, Greater China around 10%, Malaysia around 10%, Thailand around 5%, and Indonesia around 2%. In late 2022 and early 2023, UOB closed the acquisition of Citi’s consumer business (wealth management and retail deposits) in Malaysia, Thailand, and Vietnam. It also agreed to buy the US bank’s consumer businesses in Indonesia, with the transaction closing in 2023. These acquisitions are temporarily increasing UOB’s costs but also should raise its net interest margin somewhat, as the bank becomes less dependent on Singapore and more geared to emerging markets where loan rates tend to be higher. In Singapore, UOB’s loan book is more heavily weighted toward small to midsize loans than its peers, which are generally more vulnerable to an economic downturn relative to corporates. However, UOB has more than adequate capital and provisions and can continue to pay out half of its earnings to shareholders in dividends while investing in growth across ASEAN, in our view.

We maintain our narrow moat rating on Singapore’s United Overseas Bank, or UOB, and lower our fair value estimate 5% to SGD 36 from SGD 38 after its third-quarter results. Our new fair value is equivalent to 1.45 times book and implies a fair price/earnings ratio of 11.6 times assuming midcycle ROE of 12.5% and a fair dividend yield of 4.3% based on UOB’s payout ratio of 50%. With 32% upside to our reduced fair value, UOB is our top pick among Singaporean banks at current prices. We continue to expect the businesses UOB is acquiring from Citigroup in Malaysia, Thailand, Indonesia, and Vietnam to drive top-line and bottom-line growth for it once initial integration expenses have passed. Further, at a time when the property market in China is struggling and Hong Kong’s economy faces slow growth, UOB’s increased exposure to ASEAN may make it easier for UOB than for some peers to deliver medium-term growth, in our view.

United Overseas Bank is one of the three dominant banks in Singapore. It has local subsidiaries or branches in almost every country in the Asia-Pacific region, particularly across the Association of Southeast Asian Nations. Singapore accounts for around 60% of its profit, Greater China around 10%, Malaysia around 10%, Thailand around 5%, and Indonesia around 2%. In late 2022 and early 2023, UOB closed the acquisition of Citi’s consumer business (wealth management and retail deposits) in Malaysia, Thailand, and Vietnam. It also has agreements with Citi to buy the U.S. bank’s consumer businesses in Indonesia, with the transaction expected to close within 2023. These acquisitions are temporarily increasing UOB’s costs but also should raise its net interest margin somewhat, as the bank becomes less dependent on Singapore and more geared to emerging markets where loan rates tend to be higher. In Singapore, UOB’s loan book is more heavily weighted toward small to midsize loans than its peers, which are generally more vulnerable to an economic downturn relative to corporates. However, UOB has more than adequate capital and provisions and can continue to pay out half of its earnings to shareholders in dividends while investing in growth across ASEAN, in our view.

Second-quarter earnings from Singapore’s United Overseas Bank, or UOB, were in line with our expectations. We maintain our fair value estimate of SGD 38, equivalent to 1.5 times book value and 32% above the current price.

United Overseas Bank is one of the three dominant banks in Singapore. It has local subsidiaries or branches in almost every country in the Asia-Pacific region, particularly across the Association of Southeast Asian Nations. Singapore accounts for around 60% of its profit, Greater China around 10%, Malaysia around 10%, Thailand around 5%, and Indonesia around 2%. In late 2022 and early 2023, UOB closed the acquisition of Citi’s consumer business (wealth management and retail deposits) in Malaysia, Thailand, and Vietnam. It also has agreements with Citi to buy the U.S. bank’s consumer businesses in Indonesia, with the transaction expected to close within 2023. These acquisitions are temporarily increasing UOB’s costs but also should raise its net interest margin somewhat, as the bank becomes less dependent on Singapore and more geared to emerging markets where loan rates tend to be higher. In Singapore, UOB’s loan book is more heavily weighted toward small to midsize loans than its peers, which are generally more vulnerable to an economic downturn relative to corporates. However, UOB has more than adequate capital and provisions and can continue to pay out half of its earnings to shareholders in dividends while investing in growth across ASEAN, in our view.

We maintain our fair value estimate of SGD 38 on Singapore’s United Overseas Bank, or UOB, following its first-quarter results. Our estimate is equivalent to 1.50 times book value as of March 2023 and represents 31% upside.

United Overseas Bank is one of the three dominant banks in Singapore. It has local subsidiaries or branches in almost every country in the Asia-Pacific region, particularly across the Association of Southeast Asian Nations. Singapore accounts for around 60% of its profit, Greater China around 10%, Malaysia around 10%, Thailand around 5%, and Indonesia around 2%. In late 2022 and early 2023, UOB closed the acquisition of Citi’s consumer business (wealth management and retail deposits) in Malaysia, Thailand, and Vietname. It also has agreements with Citi to buy the U.S. bank’s consumer businesses in Indonesia, with the transaction expected to close within 2023. These acquisitions are temporarily increasing UOB’s costs but also should raise its net interest margin somewhat, as the bank becomes less dependent on Singapore and more geared to emerging markets where loan rates tend to be higher. In Singapore, UOB’s loan book is more heavily weighted towards small to midsize loans than its peers, which are generally more vulnerable to an economic downturn relative to corporates. However, UOB has more than adequate capital and provisions and can continue to pay out half of its earnings to shareholders in dividends while investing in growth across ASEAN, in our view.

Shares of Asian banks in our coverage declined again Thursday morning after Credit Suisse’s 24% drop overnight to below CHF 1.70 per share reignited concerns about global financial stability that emerged last week with the failure of Silicon Valley Bank. In terms of systemic risk, we see very low risk of bank runs occurring anywhere in Asia given policy support from each government and the absence of problematic large institutions like Credit Suisse which could become vectors of contagion. Japanese banks are the most susceptible in Asia, in our view, to worries over financial stability in the United States or Europe due to their greater linkages with these regions. Next in terms of vulnerability, in our view, is the Korean banking system, which depends on having access to U.S. dollar liquidity. However, we think the U.S. Federal Reserve, or the Fed, can be relied upon to set up a currency swap arrangement with the Bank of Korea again if needed to ensure stability. The Fed has a continuous unlimited swap agreement with the Bank of Japan.

We maintain our narrow moat rating for Singapore’s United Overseas Bank and lower our fair value estimate to SGD 38 per share from SGD 40 upon a change of coverage analyst and following UOB’s fourth-quarter results. Our new estimate represents a fair price/book ratio of 1.57 times based on year-end 2022 book value and 24% upside from the current share price. Assuming a midcycle return on equity of 13%, this implies a fair price/earnings ratio of 12.1 times and a fair dividend yield of 4.1% assuming a 50% payout ratio.

United Overseas Bank is one of the three dominant banks in Singapore. It has local subsidiaries or branches in almost every country in the Asia-Pacific region, particularly across the Association of Southeast Asian Nations. Singapore accounts for around 60% of its profit, Greater China around 10%, Malaysia around 10%, Thailand around 5%, and Indonesia around 2%. In November 2022, UOB closed the acquisition of Citi’s consumer business (wealth management and retail deposits) in Malaysia and Thailand. It also has agreements with Citi to buy the U.S. bank’s consumer businesses in Indonesia and Vietnam as well. These acquisitions are temporarily increasing UOB’s costs but also should raise its net interest margin somewhat, as the bank becomes less dependent on Singapore and more geared to emerging markets where loan rates tend to be higher. In Singapore, UOB’s loan book is more heavily weighted towards small to midsize loans than its peers, which are generally more vulnerable to an economic downturn relative to corporates. However, UOB has more than adequate capital and provisions and can continue to pay out half of its earnings to shareholders in dividends while investing in growth across ASEAN, in our view.

As one of three dominant banks in Singapore and a branch network and offices spanning 19 countries, we believe United Overseas Bank, or UOB, is in a strong position to capture regional growth in Asia. Established in 1935, the bank broadened its reach in the region through both acquisitions and organic growth. Its most recent acquisition of size was Citi’s consumer business in Indonesia, Malaysia, Thailand and Vietnam, expected to complete in 2023, which should help double UOB's customer base in the region. Future acquisitions are possible, but we expect a prudent approach, with bolt-on acquisition or partnerships as it expands into new regions. Previously, UOB acquired a 23% interest in PT Bank Buana in Indonesia before increasing its stake and merging it with UOB's local operation. Alternatively, the bank is launching a digital bank to penetrate existing operations in Southeast Asia.

UOB’s third-quarter results were strong as net interest margin expanded by more than we had expected, and credit cost was lower as asset quality remained prudent. While both improvements in performance were in line with our expectation, the magnitude of the trends was better than anticipated. Net profit after tax was up 26% quarter on quarter, or 34% higher against the same period last year. We are raising our fair value estimate slightly to SGD 40 per share from SGD 39 per share and have made changes to our forecasts to account for higher net interest margins and lower credit cost in 2022, offset by an acceleration of staff costs.

As one of three dominant banks in Singapore and a branch network and offices spanning 19 countries, we believe United Overseas Bank, or UOB, is in a strong position to capture regional growth in Asia. Established in 1935, the bank broadened its reach in the region through both acquisitions and organic growth. Its most recent acquisition of size was Citi’s consumer business in Indonesia, Malaysia, Thailand and Vietnam, expected to complete in 2022 or 2023, which should help UOB's customer base double in the region. Future acquisitions are possible, but we expect a prudent approach, with bolt-on acquisition or partnerships as it expands into new regions. Previously, UOB acquired a 23% interest in PT Bank Buana in Indonesia before increasing its stake and merging it with UOB's local operation. Alternatively, the bank is launching a digital bank to penetrate existing operations in Southeast Asia.

UOB reported a strong second-quarter profit of SGD 1.1 billion, up 11% year on year. Interim dividend per share, or DPS, of SGD 0.60 was unchanged from last year. Net interest income grew 18% year on year, while net interest margin, or NIM, expanded 9 basis points quarter on quarter, ahead of our expectation. However, net fee income fell 3% year on year, mainly driven by a drop in wealth fees given weaker market sentiment, partly offset by stronger loan and trade related and credit card fees. Management observes businesses taking a more cautious approach with heightened concerns on inflationary risks, supply chain issues and recession fears. As a result, we adjust our assumptions leading to higher NIM but this is offset by lower loan and the related fee growth in second-half 2022. Our fair value estimate for UOB is unchanged at SGD 39 but we reduce our fiscal 2022 dividend forecast to SGD 1.17 per share. We see the bank’s shares as attractive at close to 30% discount to our fair value estimate and 4.2% 2022 dividend yield, as of 29 July close.

As one of three dominant banks in Singapore and a branch network and offices spanning 19 countries, we believe United Overseas Bank, or UOB, is in a strong position to capture regional growth in Asia. Established in 1935, the bank broadened its reach in the region through both acquisitions and organic growth. Its most recent acquisition of size was Citi’s consumer business in Indonesia, Malaysia, Thailand and Vietnam, expected to complete in 2022 or 2023, which should help UOB's customer base double in the region. Future acquisitions are possible, but we expect a prudent approach, with bolt-on acquisition or partnerships as it expands into new regions. Previously, UOB acquired a 23% interest in PT Bank Buana in Indonesia before increasing its stake and merging it with UOB's local operation. Alternatively, the bank is launching a digital bank to penetrate existing operations in Southeast Asia.

The three Singapore banks reported solid first-quarter results with the trends generally consistent across the three banks. As expected, the results were weaker against the same period last year, mainly due to lower net fee and commission income as capital markets were much stronger in 2021. First-quarter net profit was 30% higher for DBS Group against last quarter at SGD 1.8 billion, Oversea-Chinese Banking's, or OCBC’s, net profit was up close to 40% to SGD 1.4 billion while United Overseas Bank's, or UOB’s, result was 11% weaker at SGD 906 million. In our view, DBS’ result was relatively better than peers UOB and OCBC with the former posting higher loan growth and net interest margin improvement. Trading income was also stronger quarter on quarter. For UOB and OCBC, there were one-offs in their respective results with UOB’s noninterest income lower on mark-to-market losses while OCBC’s result benefited from lower expected credit loss of 6 basis point on total loans. The latter was due to a larger expected credit loss booked in the fourth quarter last year.