“We see upside led by earnings delivery and multiples expansion,” say the analysts in their Jan 16 note, where they’ve initiated coverage on UOB Kay Hian with an “outperform” call and $3.12 target price, which is based on 10.5 times FY2027 earnings, versus the 13.1 times average multiple accorded to local listed financial services peers.
Under a bull case and an improvement in liquidity, UOB Kay Hian could see a re-rating to the valuation enjoyed by its local peers, implying a fair value of $3.91. A bear case, on the other hand, implies a target price of $2.33, based on 7.8 times earnings.
The obvious catalyst would be the stock market reforms in Singapore. Besides the STI making new highs, the rally is broadening to second- and third-line stocks, which is attracting more retail participation. In 1H2025, the 30 STI component stocks accounted for 86% of the market’s turnover. In 2H2025, the stock dipped to 80%.
According to the Macquarie analysts, with a sales force of around 2,000, UOB Kay Hian is the largest broker by this indicator. “This robust fundamental outlook is closely correlated with overall market turnover, which we project to rise from $305 billion per annum in 2024 to $352 billion by 2027,” they add.
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However, the Macquarie analysts point out that Hong Kong, UOB Kay Hian’s second-largest market, is another catalyst too. As a larger financial centre, Hong Kong is benefiting from a resumption in IPO activity and reduced concerns over trade tensions.
The Hong Kong and China markets are also expected to benefit from RMB24 trillion ($4.43 trillion) in fund flows, driven by shifts in allocations by households and insurance companies. China’s aggressive national-level plans to invest in AI and the broader technology sector are another tailwind. “This favourable backdrop underpins our optimism for UOB Kay Hian’s Hong Kong market performance,” say Vantarakis and Tan.
Meanwhile, Malaysia, which is Macquarie’s “preferred” Asean market this year, is the brokerage’s third-largest market and is set to deliver upside.
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As a company, UOB Kay Hian has maintained a consistent payout ratio of about 0.5, interpreted as a commitment to return value to shareholders. For the most recent full-year FY2024 ended Dec 31, 2024, UOB Kay Hian paid 11.9 cents per share, equivalent to $111.3 million. This was an improvement from 9.2 cents for FY2023 and 6 cents for FY2022.
However, Vantarakis and Tan point out that UOB Kay Hian has in place a scrip dividend option policy that allows shareholders to reinvest their dividends at the prevailing market price. They note that on average, around half the declared dividend has been retained, which they assume will remain constant. This has driven an average 3.3% dilution in the share base, which means 16.6% cumulated over five years.
Another impact of this scheme is that controlling shareholder, chairman and managing director Wee Ee Chao has been able to increase his stake even as the public free float shrinks. From 19.8% as at end of 2010, Wee’s latest reported holding was 35.2%. In contrast, the free float has been trimmed from 35.2% to 26%.
The analysts have also flagged what might be a risk in terms of governance and financial conduct. In 2023 and 2025, UOB Kay Hian was subject to regulatory penalties relating to anti-money laundering lapses.
In any case, with all factors taken into account, the brokerage is set for earnings growth. The Macquarie analysts expect UOB Kay Hian to improve its ebit margin from an average of 41% in FY2023 to FY2025, to 45% in the current FY2026 to FY2028, led by an 8% CAGR assumption on trading income as trading volume improves in Singapore, Hong Kong and Malaysia, a 12% CAGR in interest income as retail participation improves and narrowing cost-to-income ratio, thanks to heavier usage of its online trading platforms.
