CGS International
April 18, 2025
United Overseas Bank (UOB) Faces Softening Growth Expectations in FY25F: A Comprehensive Analysis
Investment Overview
- CGS International anticipates that United Overseas Bank (UOB) will report a 1Q25F net profit of S\$1.56 billion, marking a 5.1% year-over-year and 2.6% quarter-over-quarter increase. This growth is expected to be fueled by robust non-interest income (non-II) and higher loan balances. [[1]]
- However, the report suggests a likely softening of UOB’s FY25F growth expectations due to prevailing uncertainties. The bank had previously projected high single-digit loan growth and double-digit fee growth for FY25F. [[1]]
- Consequently, CGS International has revised its FY25F/26F/27F earnings per share (EPS) forecasts downward by 6.0%/3.7%/4.0%, leading to a reduced GGM-based target price of S\$38.80. [[1]]
- Despite these adjustments, the brokerage maintains an “Add” rating for UOB, expressing confidence in the bank’s ability to achieve year-over-year earnings growth in FY25F. [[1]]
1Q25F Performance Expectations
- UOB is expected to post a total income of S\$3.69 billion in 1Q25F, reflecting a 4.7% year-over-year and 6.6% quarter-over-quarter increase. [[1]]
- The anticipated loan growth is expected to support a flat quarter-over-quarter net interest income (NII) and higher loan and trade-related fee income. Wealth management fees are also expected to bolster UOB’s double-digit fee growth guidance for FY25F. [[1]]
- However, amid macroeconomic uncertainties stemming from trade conflicts, UOB may adopt a more conservative approach by recognizing higher general provisions (GP) in 1Q25F, following a write-back of approximately S\$277 million in 4Q24. [[2]]
- As a result, net profit growth of 5.1% year-over-year is projected for 1Q25F, with limited leverage from total income growth. [[2]]
Revised FY25F Growth Projections
- Given the volatile macroeconomic conditions, CGS International anticipates softer loan and non-II growth for UOB in the remainder of FY25F, compared to previous guidance. [[2]]
- The brokerage has dialed back its growth expectations for FY25F, projecting a softer loan growth of 4.9% year-over-year (compared to the previous 7.2%) and lower fee and commission income growth of 7.3% year-over-year (compared to the previous 14.9%). [[2]]
- Total credit cost is also expected to trend higher at 35 basis points for FY25F (compared to the previous 28 basis points) to account for potential GP recognition amid the deteriorating global economy. [[2]]
- Despite these conservative assumptions, UOB is still expected to achieve net profit growth of 3.4% year-over-year in FY25F, according to CGS International’s estimates. [[3]]
Target Price and Recommendation
- The GGM-based target price has been lowered to S\$38.80, reflecting a reduction in FY25-27F EPS forecasts by 3.7-6.0% and a decrease in ROE assumptions from 13.5% to 12.5% to account for the uncertain economic outlook. [[3]]
- UOB’s FY25F yield of approximately 7.2% is considered attractive and defensible, supported by a special dividend of S\$0.50 per share, part of a S\$3 billion package to return surplus capital, scheduled to be paid out in May and August. [[3]]
- Potential re-rating catalysts include lower-than-expected credit costs for FY25F, while downside risks include diminished earnings growth due to more drastic-than-expected US Fed Fund rate cuts and lower loan and non-II guidance. [[3]]
Key Changes in This Report
- Change in covering analyst to Tay Wee Kuang. [[3]]
- Reduction in FY25F EPS by 6.0%. [[3]]
- Reduction in FY26F EPS by 3.7%. [[3]]
- Reduction in FY27F EPS by 4.0%. [[3]]
- Lower ROE assumption for GGM valuation model from 13.5% to 12.5% to account for earnings uncertainty amid a softer global economic outlook. [[3]]
Analyst Information
- TAY Wee Kuang
- T (65) 6210 8604
- E [email protected]
- LIM Siew Khee
- T (65) 6210 8664
- E [email protected]
Financial Summary
| (S\$m) | Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Net Interest Income | 9,679 | 9,674 | 10,134 | 10,396 | 10,669 |
| Total Non-Interest Income | 4,303 | 4,620 | 4,967 | 5,500 | 6,106 |
| Operating Revenue | 13,982 | 14,294 | 15,100 | 15,896 | 16,775 |
| Total Provision Charges | -921 | -926 | -1,212 | -912 | -963 |
| Net Profit | 6,135 | 6,233 | 6,251 | 6,972 | 7,462 |
| Core EPS (S\$) | 3.67 | 3.73 | 3.74 | 4.17 | 4.46 |
| Core EPS Growth | 27.3% | 1.7% | 0.3% | 11.6% | 7.0% |
| FD Core P/E (x) | 9.49 | 9.34 | 9.31 | 8.34 | 7.80 |
| DPS (S\$) | 1.70 | 1.90 | 2.48 | 2.15 | 2.32 |
| Dividend Yield | 4.89% | 5.46% | 7.13% | 6.18% | 6.67% |
| BVPS (S\$) | 27.64 | 29.74 | 30.99 | 32.99 | 35.12 |
| P/BV (x) | 1.26 | 1.17 | 1.12 | 1.05 | 0.99 |
| ROE | 13.7% | 13.0% | 12.3% | 13.0% | 13.1% |
Share Buyback Progress
- Announced: 19/2/2025 [[2]]
- Maximum value (S\$): 2,000,000 [[2]]
- Tenure: 3 years [[2]]
| Date | No. of shares | Value (S\$) | Average price (S\$) | High (S\$) | Low (S\$) | Remarks |
|---|---|---|---|---|---|---|
| 27/3/2025 | 100,000 | 3,827,915.89 | 38.28 | 38.54 | 37.92 | 50k cancelled |
| 28/3/2025 | 100,000 | 3,820,297.42 | 38.20 | 38.50 | 38.20 | 50k cancelled |
| 1/4/2025 | 100,000 | 3,771,879.97 | 37.72 | 37.82 | 37.33 | 50k cancelled |
| 2/4/2025 | 100,000 | 3,750,256.78 | 37.50 | 37.61 | 37.30 | 50k cancelled |
| 3/4/2025 | 100,000 | 3,699,123.67 | 36.99 | 37.16 | 36.75 | 50k cancelled |
| 4/4/2025 | 100,000 | 3,568,578.74 | 35.69 | 36.52 | 35.21 | 50k cancelled |
| 7/4/2025 | 100,000 | 3,328,832.77 | 33.29 | 34.21 | 29.68 | 50k cancelled |
| 8/4/2025 | 100,000 | 3,239,379.09 | 32.39 | 33.67 | 32.01 | 50k cancelled |
| 9/4/2025 | 100,000 | 3,116,462.63 | 31.16 | 31.83 | 30.71 | 50k cancelled |
| 10/4/2025 | 400,000 | 13,285,901.46 | 33.21 | 34.50 | 32.88 | 350k cancelled |
| 11/4/2025 | 300,000 | 9,693,127.38 | 32.31 | 32.53 | 32.00 | 250k cancelled |
| 14/4/2025 | 400,000 | 13,250,554.81 | 33.13 | 33.40 | 32.82 | 350k cancelled |
| 15/4/2025 | 350,000 | 11,825,610.31 | 33.79 | 33.91 | 33.16 | 300k cancelled |
| 16/4/2025 | 350,000 | 11,900,672.87 | 34.00 | 34.13 | 33.62 | 300k cancelled |
| 17/4/2025 | 280,000 | 9,708,244.61 | 34.67 | 34.81 | 33.92 | 230k cancelled |
| Sub-total | 2,980,000 | 101,786,838 |
Earnings Changes
| FY25F | FY26F | FY27F | |||||||
|---|---|---|---|---|---|---|---|---|---|
| New | Old | % chg | New | Old | % chg | New | Old | % chg | |
| NIM (%) | 2.00% | 2.00% | N.A. | 1.97% | 1.96% | +1bp | 1.94% | 1.93% | +1bp |
| Net loan growth (%) | 4.9% | 7.2% | -2.3%pt | 5.7% | 5.7% | 0%pt | 5.3% | 5.4% | 0%pt |
| NII (S\$m) | 10,134 | 10,171 | -0.4% | 10,396 | 10,486 | -0.9% | 10,669 | 10,775 | -1.0% |
| Non-NII (S\$m) | 4,967 | 5,150 | -3.6% | 5,500 | 5,716 | -3.8% | 6,106 | 6,358 | -4.0% |
| Operating expenses (S\$m) | 6,500 | 6,500 | 0.0% | 6,735 | 6,735 | 0.0% | 6,978 | 6,978 | 0.0% |
| Cost-to-income (%) | 43.0% | 42.4% | +0.3%pt | 42.4% | 41.6% | +0.4%pt | 41.6% | 40.7% | +0.5% pt |
| Provisions (S\$m) | 1,212 | 980 | 23.7% | 912 | 931 | -2.1% | 963 | 983 | -2.1% |
| Net profit (S\$) | 6,251 | 6,653 | -6.0% | 6,972 | 7,237 | -3.7% | 7,462 | 7,772 | -4.0% |
| EPS | 3.74 | 3.98 | -6.0% | 4.17 | 4.33 | -3.7% | 4.46 | 4.65 | -4.0% |
Peer Comparison (as of 18 Apr 25)
| Company | Bbg Ticker | Recom. | Price (local) | Tgt Price (local) | Mkt Cap (US\$ m) | Up/downside | P/BV (x) CY25F | P/BV (x) CY26F | P/BV (x) CY27F | Recurr. ROE (%) CY25F | Recurr. ROE (%) CY26F | Recurr. ROE (%) CY27F | P/PPOPS (x) CY25F | P/PPOPS (x) CY26F | P/PPOPS (x) CY27F | Div Yield (%) CY25F | Div Yield (%) CY26F | Div Yield (%) CY27F | 3-year EPS CAGR (%) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DBS Group | DBS SP | Hold | 40.83 | 43.10 | 88,435 | 0.8% | 1.68 | 1.64 | 1.61 | 16.4% | 16.3% | 16.1% | 8.5 | 8.4 | 8.3 | 7.5% | 8.1% | 8.7% | |
| OCBC | OCBC SP | Add | 15.98 | 19.50 | 54,824 | 3.6% | 1.21 | 1.15 | 1.08 | 13.4% | 13.3% | 13.0% | 8.1 | 7.8 | 7.4 | 6.6% | 6.8% | 5.9% | |
| United Overseas Bank | UOB SP | Add | 34.80 | 38.80 | 44,360 | 6.9% | 1.12 | 1.05 | 0.99 | 12.1% | 13.0% | 13.1% | 6.8 | 6.3 | 5.9 | 7.1% | 6.2% | 6.7% | |
| Singapore average | 3.2% | 1.37 | 1.31 | 1.25 | 14.1% | 14.3% | 14.2% | 7.9 | 7.6 | 7.3 | 7.1% | 7.2% | 7.4% | ||||||
| Bank Central Asia | BBCA IJ | Add | 8,500 | 12,350 | 62,245 | 6.3% | 3.72 | 3.41 | 3.14 | 21.7% | 21.4% | 21.3% | 13.8 | 12.8 | 11.7 | 3.6% | 3.9% | 4.2% | |
| Bank Jago | ARTO IJ | Add | 1,565 | 3,000 | 1,289 | na | 2.47 | 2.33 | na | 4.2% | 7.3% | na | 20.7 | 12.0 | na | 0.2% | 0.7% | na | |
| Bank Mandiri | BMRI IJ | Add | 4,600 | 6,500 | 25,504 | 7.9% | 1.40 | 1.28 | 1.17 | 19.2% | 19.5% | 19.9% | 4.4 | 3.9 | 3.5 | 7.9% | 8.8% | 9.8% | |
| Bank Rakyat Indonesia | BBRI IJ | Add | 3,640 | 4,900 | 32,771 | 5.8% | 1.66 | 1.58 | 1.51 | 17.7% | 19.4% | 20.5% | 4.6 | 4.3 | 3.9 | 8.9% | 10.2% | 11.3% | |
| Bank Tabungan Negara | BBTN IJ | Add | 945.0 | 1,500 | 787.8 | na | 0.38 | 0.34 | na | 10.5% | 12.1% | na | 1.5 | 1.3 | na | 5.3% | 6.7% | na | |
| Bank Tabungan Pensiunan Nasional Syariah | BTPS IJ | Hold | 955.0 | 885.0 | 437.0 | na | 0.74 | 0.68 | na | 13.4% | 14.5% | na | 2.6 | 2.4 | na | 7.9% | 9.7% | na | |
| Indonesia average | na | 2.08 | 1.93 | na | 18.9% | 19.6% | na | 6.6 | 6.0 | na | 6.0% | 6.7% | na | ||||||
| Affin Bank Berhad | ABANK MK | Reduce | 2.71 | 2.76 | 1,476 | 7.2% | 0.55 | 0.53 | 0.52 | 4.4% | 4.6% | 5.0% | 8.4 | 7.5 | 6.9 | 3.2% | 3.4% | 3.8% | |
| Alliance Bank Malaysia Berhad | ABMB MK | Hold | 4.39 | 5.27 | 1,542 | 8.5% | 0.83 | 0.79 | 0.75 | 10.2% | 10.4% | 10.1% | 5.4 | 5.1 | 5.0 | 6.0% | 6.4% | 6.6% | |
| AMMB Holdings | AMM MK | Add | 5.20 | 6.39 | 3,898 | 8.1% | 0.80 | 0.75 | 0.70 | 9.7% | 10.0% | 10.0% | 6.2 | 5.5 | 5.3 | 4.7% | 5.2% | 5.5% | |
| Bank Islam Malaysia Bhd | BIMB MK | Add | 2.43 | 3.13 | 1,250 | 8.6% | 0.68 | 0.66 | 0.63 | 7.9% | 8.1% | 8.3% | 5.2 | 4.8 | 4.6 | 6.8% | 7.2% | 7.8% | |
| Hong Leong Bank | HLBK MK | Add | 19.84 | 31.40 | 9,758 | 8.3% | 1.04 | 0.97 | 0.90 | 11.3% | 11.4% | 11.4% | 11.2 | 10.6 | 9.8 | 4.3% | 4.5% | 4.9% | |
| Malayan Banking Bhd | MAY MK | Add | 10.02 | 12.80 | 27,465 | 6.8% | 1.12 | 1.05 | 0.98 | 10.7% | 10.2% | 10.0% | 7.9 | 7.2 | 7.0 | 6.4% | 6.7% | 7.0% | |
| Public Bank Bhd | PBK MK | Add | 4.39 | 5.81 | 19,334 | 6.6% | 1.35 | 1.28 | 1.22 | 12.3% | 12.2% | 12.3% | 8.6 | 7.9 | 7.6 | 5.2% | 5.6% | 5.9% | |
| RHB Bank Bhd | RHBBANK MK | Add | 6.60 | 7.25 | 6,528 | 8.5% | 0.84 | 0.80 | 0.75 | 9.6% | 10.3% | 10.5% | 6.1 | 5.5 | 5.1 | 6.7% | 7.6% | 8.1% | |
| Malaysia average | 7.4% | 1.06 | 1.00 | 0.94 | 10.6% | 10.5% | 10.5% | 7.9 | 7.3 | 6.9 | 5.7% | 6.0% | 6.4% | ||||||
| Bangkok Bank | BBL TB | Add | 146.5 | 170.0 | 8,404 | 3.6% | 0.48 | 0.46 | 0.44 | 7.4% | 7.3% | 7.6% | 3.2 | 3.2 | 3.0 | 6.1% | 6.2% | 6.7% | |
| Kasikornbank | KBANK TB | Add | 151.0 | 187.0 | 10,752 | 7.3% | 0.60 | 0.57 | 0.54 | 8.3% | 8.9% | 8.9% | 3.4 | 3.2 | 3.1 | 5.3% | 6.0% | 6.0% | |
| Kiatnakin Phatra Bank | KKP TB | Hold | 55.50 | 52.00 | 1,381 | 8.8% | 0.72 | 0.69 | 0.66 | 7.1% | 7.6% | 8.9% | 4.9 | 4.6 | 4.0 | 4.9% | 5.4% | 6.6% | |
| Krung Thai Bank | KTB TB | Add | 21.80 | 26.40 | 9,157 | 7.7% | 0.65 | 0.61 | 0.58 | 10.7% | 10.5% | 10.3% | 3.5 | 3.5 | 3.4 | 7.9% | 8.2% | 8.5% | |
| Muangthai Capital | MTC TB | Add | 43.25 | 54.00 | 2,756 | 22.1% | 2.10 | 1.78 | 1.51 | 17.2% | 17.9% | 17.7% | 6.7 | 5.7 | 5.0 | 0.8% | 0.9% | 1.1% | |
| SCB X | SCB TB | Add | 116.0 | 130.0 | 11,738 | 4.5% | 0.78 | 0.77 | 0.76 | 9.3% | 9.4% | 9.5% | 3.9 | 3.8 | 3.7 | 9.4% | 9.6% | 9.9% | |
| Srisawad Corporation | SAWAD TB | Hold | 29.00 | 34.00 | 1,316 | 5.3% | 1.27 | 1.14 | 1.02 | 13.2% | 13.6% | 14.7% | 5.4 | 4.9 | 4.4 | 3.4% | 3.4% | 3.4% | |
| Tisco Financial Group | TISCO TB | Hold | 100.00 | 99.00 | 2,407 | 0.3% | 1.82 | 1.78 | 1.74 | 14.7% | 14.6% | 14.4% | 8.0 | 7.6 | 7.5 | 6.9% | 6.9% | 6.9% | |
| TMBThanachart Bank | TTB TB | Hold | 1.96 | 1.88 | 5,719 | 4.7% | 0.77 | 0.74 | 0.71 | 8.6% | 8.5% | 8.8% | 5.1 | 5.0 | 4.8 | 6.1% | 6.2% | 6.7% | |
| Thailand average | 6.2% | 0.69 | 0.66 | 0.63 | 9.1% | 9.2% | 9.3% | 3.9 | 3.8 | 3.6 | 6.6% | 6.9% | 7.2% |
ESG Analysis
- UOB received a B+ for its combined ESG score by LSEG in 2023, driven by an A- Social pillar score (approximately 50% weightage). [[4]]
- The bank’s sustainability approach is guided by five principles and four overarching strategies to integrate ESG into its operations. [[4]]
- UOB has shown improvements in its Social and Governance pillars, particularly in human rights efforts, management, and CSR strategy. [[4]]
- The bank launched Phase Two of Better U, a learning and development program focused on enhancing employees’ skills, and was included in the Bloomberg Gender-Equality Index for its commitment to workplace diversity. [[4]]
ESG Controversies and Implications
- In 2021, UOB faced a controversy related to product responsibility, where a staff member fell victim to a scam and disclosed information on 1,166 Chinese national customers. [[4]]
- UOB has since reviewed its internal control processes and implemented safeguards, which is viewed as a positive step by the investment community. [[4]]
- However, additional security breaches could negatively impact its valuations. [[4]]
ESG Strengths and Implications
- UOB performs strongly among its Singaporean peers in the Environmental pillar and ranks well in the Social pillar due to its emphasis on human rights. [[5]]
- Its Responsible Financing Policy prohibits financing companies involved in forced labor, child labor, or violations of local or indigenous communities’ rights. [[5]]
- UOB’s proactive stance on human rights issues and commitment to sustainable investing may lead to a premium valuation as ESG mandates become more prevalent. [[5]]
ESG Trends and Implications
- From 2019 to 2023, UOB improved its Social scores from B+ to A- and its Environmental scores from B+ to A+. [[5]]
- Improvements in human rights, management, and CSR were partially offset by deteriorations in emissions, workforce, and environment innovation categories. [[5]]
- Progressive improvements in UOB’s ESG pillars may warrant a premium to valuations as the marketplace becomes more discerning in terms of ESG adherence. [[5]]
Financial Ratios and Performance
| (S\$m) | Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Net Interest Income | 9,679 | 9,674 | 10,134 | 10,396 | 10,669 |
| Total Non-Interest Income | 4,303 | 4,620 | 4,967 | 5,500 | 6,106 |
| Operating Revenue | 13,982 | 14,294 | 15,100 | 15,896 | 16,775 |
| Total Non-Interest Expenses | -6,217 | -6,310 | -6,500 | -6,735 | -6,978 |
| Pre-provision Operating Profit | 7,765 | 7,984 | 8,600 | 9,162 | 9,797 |
| Total Provision Charges | -921 | -926 | -1,212 | -912 | -963 |
| Operating Profit After Provisions | 6,844 | 7,058 | 7,388 | 8,250 | 8,834 |
