Analysts see upside potential for United Overseas Bank (UOB) shares following the bank’s FY2024 results for the year ended Dec 31, 2024, which surpassed expectations by 1%. However, UOB’s 4QFY2024 results fell short of consensus estimates by 4%.
On Feb 19, UOB reported a record net profit of $6 billion for the year, 6% higher y-o-y, thanks mainly to strong net fee income and trading and investment income. The bank’s 4QFY2024 net profit stood at $1.5 billion, up 9% y-o-y but 5% lower on a q-o-q basis.
UOB has proposed a final dividend of 92 cents per share and a special dividend of 50 cents per share in 2025 as part of the bank’s 90th anniversary. Morningstar has increased its target price to $41, saying that the increase matches the 2.5% increase in UOB’s book value since 3QFY2024. The firm’s analyst, Michael Makdad, has also maintained his “four-star” rating with a higher target price of $41 from $40 previously.
“While we believe the loan and fee growth targets may be somewhat ambitious, we remain positive on UOB’s earnings outlook for 2025 and expect its return on equity to increase from 12.6% in 2024,” says Makdad, whose new target price is the lowest among the analysts featured here.
However, he adds that the 2.5% increase in his estimate matches the 2.5% increase in UOB’s book value since 3QFY2024. “Our valuation is equivalent to 1.3 times FY2025 book value,” Makdad notes, adding that shares in UOB are up 6% year-to-date (ytd) after a 28% increase in 2024.
“While the stock’s 6% upside to our new fair value estimate places it in ‘three-star’ territory, its 4.7% trailing dividend yield (a 6.5% yield based on our FY2025 forecast, including special dividends) and ‘low uncertainty’ rating make it an attractive income investment, in our view.”
See also: Hong Leong Asia targets JS-SEZ growth and China recovery
Ending the year strong
OCBC Investment Research’s (OIR) Carmen Lee has maintained her “hold” call on UOB despite the bank ending the year on a “strong note”. Lee downgraded her call in a Jan 10 report after UOB’s shares surged at the beginning of the year.
“Due to the strong share price outperformance in the last two months, our fair value estimate has been reached. We are maintaining our fair value estimate for now, as we watch for key policy changes in the coming weeks from the US and China to re-assess earnings impact,” she wrote at the time.
See also: Centurion Corp sees growth from strong construction demand
Lee commends UOB’s record results, which align with her full-year estimates. She notes that Southeast Asia is proving “more resilient” due to increased inter-regional trade amidst current geopolitical tensions and trade tariffs that may disrupt regional commerce. Among Singapore’s three banks, UOB has the strongest focus on Southeast Asia.
Following UOB’s announcement, Lee has raised her earnings estimates for FY2025 and FY2026, which takes into account fewer interest rate cuts and better fee income. As a result, her target price was raised to $41.50 from $37.50 previously.
UOB has guided for high single-digit loan growth, double-digit fee growth, higher total income and a cost-to-income ratio of 42% (versus 42.5% in FY2024) in FY2025. The bank also expects to keep credit costs at 25 basis points (bps) to 30 bps in FY2025, unchanged from FY2024’s guidance.
In addition to her report dated Feb 19, Lee notes that UOB is likely to see strong share price support from its “decent dividend payout.” She also believes the bank’s regional franchise and digital strategy, as well as synergies from its acquisition of Citi’s consumer business, are catalysts.
Lee is concerned that worsening asset quality trends, higher credit costs, and persistent cost pressures pose downside risks. Slower loan growth and an unexpected slowdown in macroeconomic conditions across key Asean markets also contribute to these risks.
Capital distribution strategy
DBS Group Research and RHB Bank Singapore have maintained their “buy” calls with higher target prices as both houses cheer UOB’s “long-awaited” capital distribution strategy. “Near term, investors stand to enjoy an estimated 2025 dividend yield of 6.1% while, further out, we think UOB is well-poised to capture trade and investment flows arising from the shift in supply chains,” says the RHB team. The team has raised its target price estimate to $41.60 from $40.20 previously.
For more stories about where money flows, click here for Capital Section
DBS’s Lim Rui Wen also has a higher target price of $43 from $37.90 previously. “We believe [a] higher return on equity (ROE) trajectory alongside active capital management plans to return capital to shareholders are positives for the stock,” she writes in her Feb 20 report. “UOB’s share price remains well supported by its strong provisions buffer of 99% and a forward dividend yield of [around] 5.4%, with potential upside for higher dividends.”
Like OCBC’s Lee, Lim is also concerned about asset quality risks amid an uncertain macroeconomic and high-interest rate environment, especially with regard to commercial real estate (CRE) exposures. “UOB’s average loan-to-value (LTV) for office CRE continues to be [around] 50%, providing a buffer in the event underlying collateral valuations collapse,” she writes. “Faster-than-expected Fed cuts also pose downside risks to our earnings estimates.”
Capital return commitment
CGS International analysts Andrea Choong and Lim Siew Khee have maintained their “add” call on UOB, with a higher target price of $43 from $39.50 previously. They expect the bank to benefit from earnings synergies from the Citi integration.
“UOB’s capital management initiatives were a key focus in its FY2024 earnings briefing. Key considerations when determining its $3 billion capital return included long-term ROE optimisation (UOB targets 14%), shareholder preference (buybacks versus dividends), dividend payout (50% payout ratio), capital consumption considerations (optimal common equity tier or CET-1 of 4%) and balance sheet growth opportunities (sustainable 8% risk-weighted assets growth target),” write Choong and Lim.
“While UOB is committed to its announced $3 billion package to return surplus capital over three years, the dissipation of macroeconomic uncertainties ahead could warrant potential upside (we estimate 0.63 cents per share) to this capital return quantum,” they add.
Yet, the analysts also note UOB’s “asset quality hiccups,” with higher specific provisions mainly from two commercial real estate exposures (one office and one retail) in the US, where property valuations fell drastically. Given prior signals of faltering asset quality, UOB wrote back 25 bps in general provisions earmarked for these exposures in 4QFY2024.
At the same time, analysts see that irregularities in the migration of its Citi portfolio to Thailand have started to stabilise. The bank’s cost of credit from this book eased to just above 3% in December 2024 (from 5% to 6% post-acquisition).
“In being proactive in managing its exposures, UOB revised its expected credit loss (ECL) 1 parameters for its retail model in 2024, resulting in higher provisions (for prudence) for its performing portfolio on an ongoing basis,” write Choong and Lim. “UOB reiterated its 25 bps to 30 bps credit cost guidance for FY2025 as it expects its portfolio to remain sound.”
Asean strategy an advantage
Maybank Securities’ Thilan Wickramasinghe has maintained his “buy” call, raising his target price to $44.32 from $38.75 previously. Wickramasinghe’s target price, 1.5 times below +1 standard deviation (s.d.) of UOB’s long-term mean, is the highest among the analysts.
In his Feb 19 report, the analyst noted UOB’s margin pressures, but these may be offset by the group’s integrated Asean strategy, which can catalyse fees and credit growth in the future.
UOB’s Asean strategy may also help the group to diversify its loan book towards growth sectors with better credit quality. Amid the US-China trade war, Wickramasinghe believes UOB’s Asean strategy will give it an advantage over its peers.
“Unlike past MNC relocations, who moved with their entrenched global banking relationships, the current crop of relocators have fewer relationships. This gives UOB’s integrated Asean platform an advantage,” he writes.
The analyst expects UOB’s ROEs for FY2025 to FY2027 to be at least three percentage points higher than the past decade, factoring in the bank’s capital management initiatives. As a result, Wickramasinghe believes the bank warrants a higher valuation.
After UOB’s 2% exit net interest margin (NIM) in 4QFY2024, Wickramasinghe has cut his FY2025 to FY2026 net interest income (NII) forecast by 8% to 12%. Conversely, he has increased his non-interest income estimates for the same period by 8% to 13%, following the launch of a private wealth platform.
Meanwhile, PhillipCapital analyst Glenn Thum has maintained his “accumulate” rating on UOB, raising the target price to $41.80 from $37. UOB’s FY2024 adjusted patmi was 97% of Thum’s full-year forecast, while 4QFY2024 adjusted earnings of $1.54 billion were slightly below his expectations. The weaker-than-expected 4QFY2024 results were due to lower-than-forecast fee income and higher provisions.
Thum has also lowered his FY2025 earnings estimates by 3% due to lower non-interest income and higher provisions. However, he expects UOB’s earnings for the year to grow by 12% y-o-y due to more substantial fees, trading income and a recovery in loan growth. FY2025 NII and NIM are expected to remain stable.
According to Thum’s Feb 21 report, UOB is expected to maintain its NII and NIM by lowering deposit costs and increasing loan growth. The successful integration of Citi’s portfolios will boost fee income as UOB expands in Asean. There is also potential for further upside to the estimated 6.5% dividend yield (including a 50-cent special dividend) if UOB raises its dividend payout ratio above 50%. The special dividend is expected to continue for at least two more years (until FY2027) to help UOB reach its optimal CET-1 operating range of 14%.
