CGS International analysts Tay Wee Kuang and Lim Siew Khee have lowered their target price to $38.60 from $38.80 previously as they believe UOB will continue to recognise higher GPs for the remainder of FY2025. For the same reason, Tay and Lim have reduced their earnings per share (EPS) estimates for FY2025, FY2026 and FY2027 by 4.4%, 4.2% and 4.9% respectively, to reflect a “likely stagnation” of profit in FY2025 due to the higher GPs.
During the quarter, UOB announced that it has paused guidance for FY2025, although the CGSI analysts say they do not expect to see “drastic revisions” given the bank’s “resilient” operational performance in 1QFY2025.
As such, they have kept their “add” call as they believe UOB’s earnings will remain “resilient” as about 85% of the bank’s loan book is exposed to Asean and Greater China. UOB may also potentially benefit from the re-routing of trade flows away from the US, the analysts add.
Noting that the bank’s exit net interest margin (NIM) for 1QFY2025 was 1.98%, 2 basis points from the quarter’s average of 2%, Tay and Lim also like that UOB has more ways to help keep NIM pressures off. This includes managing its funding costs by lowering the interest rates on its high-interest savings account, UOB One, which will take effect on May 1.
“Nevertheless, we believe potential steeper rate cuts by the US Federal Reserve alongside a lagged effect of loan repricing could exacerbate margin pressure in 2HFY2025,” they write.
PhillipCapital analyst Glenn Thum has slashed his target price to $35.50 from $39.80 as he lowers his FY2025 earnings estimates by 10% as he factors in expectations of lower net interest income (NII) and non-interest income.
UOB’s 1QFY2025 earnings stood below Thum’s estimates at 22% of his full-year forecast due to the lower-than-expected NII and higher GPs. On UOB’s setting aside of higher GPs, Thum likens the move to “stashing provisions under the mattress”.
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“Total allowances jumped 78% y-o-y, from higher GP of $133 million (1QFY2024: $28 million). Management mentioned that this increase was to strengthen their provision coverage and not due to weaknesses in any particular sector or segment,” Thum notes. “Resultantly, total credit costs were up 12 bps y-o-y to 35 bps.”
During the quarter, UOB’s non-performing loan (NPL) ratio inched up slightly to 1.6%. Its asset quality remained resilient, with 1QFY2025 non-performing asset (NPA) coverage at 90% and unsecured NPA coverage at 207%, he adds.
“Notably, there was an uptick in new NPAs to $400 million (1QFY2024: $249 million), mainly from one HK property-based loan that was previously provided for and did not affect 1QFY2025’s credit cost,” he continues.
That said, Thum has maintained his “accumulate” call as he sees further upside to his estimated dividend yield of 6.6%, should UOB raise its dividend ratio to above 50%. His current estimate already includes the bank’s special dividend of 50 cents.
“We believe the special dividend can continue for at least two more years (until FY2027) to reach UOB’s common equity tier 1 (CET-1) optimal range of 14%,” he writes.
Thum’s new target price assumes a FY2025 P/BV of 1.26 times, a lowered return on equity (ROE) estimate of 12.8% from 14.3% before, a lowered risk-free rate of 2.5% from 3.1% previously and terminal growth rate of 1% down from 2%.
The analyst expects UOB’s FY2025 earnings to be flat y-o-y as the bank’s excess profits will be put into GPs to strengthen their provision cover. At the same time, he believes UOB will maintain its NIM by cutting its deposit costs and continuing to increase loan growth.
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“At the same time, fee income will be the biggest driver from the successful integration of Citi portfolios, which will accelerate UOB’s expansion into Asean,” he says.
RHB Bank Singapore’s research team remains “neutral” on UOB with the bank’s 1QFY2025 “slow start”. The bank’s first quarter results also stood below RHB’s estimates due to the higher credit costs from its pre-emptive allowances made.
That said, the team remains positive on the bank’s commitment to its $3 billion capital distribution plan and 50% payout. “This dividend commitment plus mean valuation should aid downside support.”
The team also liked that UOB’s “robust” operating profit, which rose by 11% q-o-q and 7% y-o-y to $2.1 billion and NIM, which “held up well”. Deposit and liquidity management helped as well, with the bank’s loan-to-deposit ratio (LDR) rising to 84% from 82% - 83% in 4QFY2024 and 1QFY2024.
“Thus far, client activities have held up although this needs to be balanced with the impact of possible front-loading activities,” says RHB. During the briefing, UOB’s management said the direct impact from the US tariffs is “manageable” as its exposure to US exporters is small. Trade makes up 10% of UOB’s total loans and, of which, US exporters account for 20% to 30%.
That said, the bank is more concerned over the indirect and second order impact, which it is still quantifying at this stage. However, it does not believe that the situation will be as bad as the one during Covid-19, with the bigger immediate risk on growth instead of asset quality, which RHB interprets as UOB having “ample liquidity”.
However, it sees that UOB’s FY2026 target of 14% for ROE is likely to be delayed given the uncertain macroeconomic environment.
RHB has lowered its patmi estimates for FY2025, FY2026 and FY2027 by 2% per year after increasing its FY2025 to FY2026 credit cost estimates to 30 bps from 25 bps - 26 bps and lowering their loan growth assumptions. As a result, their target price has been lowered to $37.50 from $37.60.
Morningstar Equity Research analyst Michael Makdad has lowered his fair value estimate to $39 from $41, which reflects a 10 bps increase in credit cost assumptions for FY2025 and FY2026, as well as a 5 bps increase in FY2027.
“We believe most elements of UOB’s guidance—high-single-digit loan growth, double-digit fee growth, higher total income, and a cost/income ratio around 42%—are likely to hold. However, its previous credit cost forecast of 25bps -30 bps now appears too optimistic,” Makdad writes
The analyst also expects UOB’s NIM to decline by 9 bps in FY2025, compared with his previous assumption of a 3 bps drop, due to faster-than-expected rate cuts. He has kept his assumptions for loan and fee growth unchanged.
Makdad has a “four star” rating on UOB.
DBS, Citi and Jefferies keep ‘hold’, ‘neutral’ and ‘buy’ calls with unchanged target prices
DBS Group Research analyst Lim Rui Wen has maintained her “hold” call as “uncertainty persists”.
“We believe there are downside risks to earnings in an escalating trade war environment given the huge and broad US tariffs. Furthermore, UOB has the largest Asean exposure amongst Singapore banks, with 82% of group profit before tax derived from Asean,” she writes.
The analyst also remains watchful on the bank’s asset quality risks amid an environment of slower global growth with concerns of accelerating Fed rate cuts on top of the bank’s commercial real estate exposures (CRE).
“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,” Lim notes.
The analyst has kept her target price at $32.70, which is based on an ROE of 12%, 3% growth and 11% cost of equity. Her target price also represents an FY2026 P/B multiple of 1.0 times, slightly below UOB’s 15-year historical forward P/B average.
“We believe valuations will reflect an environment of slower growth and accelerating rate cuts going forward,” she writes.
Jefferies analysts Sam Wong, Chen Shujin and Joanna Cheah are the most optimistic among have kept their “buy” call on UOB with an unchanged target price of $43.
“Hedging and trade front loading could still support activities in early part of 2Q, but visibility is low after that,” they write. Their target price is based on a 11.5 times multiple applied to 12-month forward EPS.
Citi Research analyst Brandon Lee have maintained his “neutral” call with an unchanged target price of $34.80 as UOB’s net profits for the quarter stood within his estimates.
Shares in UOB closed 28 cents higher or 0.81% up at $34.83 on May 9.
