CGS International May 7, 2025
UOB Navigates Uncertainty with Resilient 1Q25 Performance
United Overseas Bank (UOB) reported a resilient performance in the first quarter of 2025, although net profit came in slightly below analyst expectations. The bank demonstrated strong operational metrics, offsetting the impact of a higher effective tax rate, likely influenced by the implementation of new global tax regulations. While management has paused its full-year guidance amidst macroeconomic uncertainty, the underlying operational strength suggests drastic revisions may be unlikely.
1Q25 Performance Overview
UOB posted a 1Q25 net profit of S$1.49 billion. This represented a marginal increase of 0.3% year-on-year but a 2.1% decline quarter-on-quarter. The reported profit was slightly below CGS International’s forecast by 4.6% and Bloomberg consensus by 3.4%.
The primary factor contributing to the softer profitability compared to expectations was a higher effective tax rate. This is believed to be a result of the implementation of the minimum tax rate under Pillar 2 of the Base Erosion and Profit Shifting (BEPS) 2.0 framework, which took effect from 2025.
Resilient Operational Performance in 1Q25
Despite the tax impact, UOB’s core operational performance remained strong in the first quarter:
Net Interest Income (NII): NII stood at S$2.41 billion, showing resilience with a 2.0% year-on-year increase, although down 1.7% quarter-on-quarter. This was achieved as a 2 basis point (bp) year-on-year decline in Net Interest Margin (NIM) was offset by commendable loan growth.
Loan Growth: Loan growth was robust at 5.7% year-on-year.
Net Fee and Commission Income: This segment saw significant growth, increasing 19.7% year-on-year and 22.4% quarter-on-quarter. The growth was broad-based, driven by higher fees from credit cards, wealth management, and loan-related activities.
Total Allowances: UOB recognized S$290 million in total allowances for 1Q25, translating to credit costs of 35bp. Specific provisions were 19bp, which was UOB’s lowest level since 3Q22, suggesting no systemic risks had built up during the quarter.
Guidance Pause and Outlook
Management has decided to pause its earlier FY25F guidance in light of ongoing macroeconomic uncertainty, particularly following the US’s Liberation Day in April. However, given the resilient operational performance in 1Q25, drastic revisions to the full-year outlook are not anticipated.
In 1Q25, UOB achieved two out of four of its earlier FY25F guidance targets:
Total income growth: Achieved +3.8% year-on-year in 1Q25 (Guidance: Target was total income growth).
Double-digit fee income growth: Achieved +19.4% year-on-year in 1Q25 (Guidance: Double-digit fee income growth).
High single-digit loan growth: Achieved +5.7% year-on-year in 1Q25 (Guidance: High single-digit loan growth; 1Q25 result is mid-single-digit growth).
Total credit costs: Reported 35bp in 1Q25 (Guidance: 25-30bp).
UOB’s CEO noted that trade flows within the China-ASEAN corridor and the intra-ASEAN economic bloc remained intact post Liberation Day. Healthy trade flows in these regions, which constitute approximately 85% of UOB’s loan book as of 1Q25F, could support loan growth, albeit potentially more muted than initially targeted.
Investment View: Reiterate Add
CGS International reiterates an “Add” recommendation for United Overseas Bank, maintaining an unchanged GGM-based target price of S$38.80. The view is that UOB is well-positioned to achieve earnings growth even amidst economic uncertainties in FY25F.
Key potential re-rating catalysts for the stock include:
Loan growth exceeding the expectation of 5% year-on-year.
An escalated pace of share buybacks.
Implementation of new capital return initiatives.
Potential downside risks identified are:
Drastic interest rate cuts by the US Federal Reserve leading to pressure on NIMs.
Escalating trade tensions and slowing global growth, which could translate to a drastic downward revision to FY25F guidance, including muted loan growth.
Recognition of higher specific provisions (SPs) as a result of slowing trade activity within ASEAN.
UOB remains committed to its S$3 billion capital distribution plan, which includes a declared special DPS of S$0.50 for FY25F (amounting to approximately S$835 million) and a S$2 billion share buyback program across FY25F-27F.
Key Financial Forecasts
Based on CGS International research estimates and company reports:
| (S\$m) |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Net Profit |
6,233 |
6,251 |
6,972 |
7,462 |
| Recurring Net Profit |
6,233 |
6,251 |
6,972 |
7,462 |
| Normalised Net Profit |
6,059 |
6,263 |
6,986 |
7,477 |
Key Ratios
Based on CGS International research estimates and company reports:
|
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Core EPS (S\$) |
3.74 |
3.74 |
4.17 |
4.46 |
| Core EPS Growth |
0.3% |
0.3% |
11.6% |
7.0% |
| FD Core P/E (x) |
9.36 |
9.36 |
8.39 |
7.84 |
| Normalised EPS (S\$) |
3.63 |
3.74 |
4.17 |
4.46 |
| Normalised EPS Growth |
3.4% |
3.4% |
11.6% |
7.0% |
| FD Normalised P/E (x) |
9.64 |
9.36 |
8.39 |
7.84 |
| Recurring ROE |
12.3% |
12.3% |
13.0% |
13.1% |
| P/BV (x) |
1.13 |
1.13 |
1.06 |
1.00 |
| DPS (S\$) |
2.48 |
2.48 |
2.15 |
2.32 |
| Dividend Yield |
7.09% |
7.09% |
6.15% |
6.63% |
Note: Some Dec-24A values in the Key Ratios section appear inconsistent with the P&L table and the first page summary table. Data presented here is directly from the ‘Key Ratios’ table provided.
Key Drivers
Based on CGS International research estimates and company reports:
|
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Net interest margin (%) |
2.0% |
2.0% |
2.0% |
1.9% |
| Net interest income growth (%) |
-0.1% |
4.8% |
2.6% |
2.6% |
| Non-interest income growth (%) |
7.4% |
7.5% |
10.7% |
11.0% |
| Cost-income ratio (%) |
44.1% |
43.0% |
42.4% |
41.6% |
| Net loan growth (%) |
5.3% |
4.9% |
5.7% |
5.3% |
| Deposit growth (%) |
4.8% |
2.0% |
4.5% |
4.5% |
| Loans-deposits ratio (%) |
82.7% |
85.0% |
86.0% |
86.7% |
Sector Comparison (Data as of May 6, 2025)
A comparison of key metrics for banks in Singapore, Indonesia, Malaysia, and Thailand:
| Company |
Bbg Ticker |
Recom. |
Mkt Cap (US\$ m) |
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 |
94,761 |
1.77 |
1.73 |
1.69 |
16.4% |
16.3% |
16.1% |
8.9 |
8.8 |
8.7 |
7.1% |
7.7% |
8.2% |
0.8% |
| OCBC |
OCBC SP |
Hold |
56,706 |
1.24 |
1.18 |
1.12 |
12.6% |
12.8% |
12.5% |
8.6 |
8.3 |
8.0 |
6.5% |
6.7% |
5.8% |
2.5% |
| United Overseas Bank |
UOB SP |
Add |
45,365 |
1.13 |
1.06 |
1.00 |
12.1% |
13.0% |
13.1% |
6.8 |
6.4 |
6.0 |
7.1% |
6.1% |
6.6% |
6.9% |
| Singapore average |
|
|
|
1.41 |
1.35 |
1.29 |
13.9% |
14.2% |
14.0% |
8.2 |
8.0 |
7.7 |
6.9% |
7.0% |
7.2% |
2.9% |
| Bank Central Asia |
BBCA IJ |
Add |
67,637 |
3.95 |
3.62 |
3.33 |
21.7% |
21.4% |
21.3% |
14.7 |
13.5 |
12.4 |
3.4% |
3.7% |
4.0% |
6.3% |
| Bank Jago |
ARTO IJ |
Add |
1,635 |
3.06 |
2.89 |
na |
4.2% |
7.3% |
na |
25.6 |
14.9 |
na |
0.2% |
0.5% |
na |
na |
| Bank Mandiri |
BMRI IJ |
Add |
28,257 |
1.51 |
1.38 |
1.26 |
19.2% |
19.5% |
19.9% |
4.7 |
4.2 |
3.8 |
7.3% |
8.1% |
9.0% |
7.9% |
| Bank Rakyat Indonesia |
BBRI IJ |
Add |
35,750 |
1.77 |
1.69 |
1.61 |
17.7% |
19.4% |
20.5% |
4.9 |
4.6 |
4.1 |
8.3% |
9.6% |
10.6% |
5.8% |
| Bank Tabungan Negara |
BBTN IJ |
Add |
900.1 |
0.43 |
0.40 |
0.37 |
9.5% |
9.6% |
9.8% |
1.7 |
1.6 |
1.4 |
5.4% |
5.8% |
6.4% |
7.7% |
| Bank Tabungan Pensiunan Nasional Syariah |
BTPS IJ |
Add |
585.4 |
0.93 |
0.86 |
0.79 |
13.3% |
14.4% |
14.8% |
3.7 |
3.3 |
3.0 |
2.8% |
6.8% |
8.1% |
17.9% |
| Indonesia average |
|
|
|
2.23 |
2.07 |
na |
18.8% |
19.5% |
na |
7.1 |
6.5 |
na |
5.6% |
6.2% |
na |
na |
| Affin Bank Berhad |
ABANK MK |
Reduce |
1,563 |
0.53 |
0.51 |
0.50 |
4.4% |
4.6% |
5.0% |
8.1 |
7.2 |
6.7 |
3.3% |
3.6% |
3.9% |
7.2% |
| Alliance Bank Malaysia Berhad |
ABMB MK |
Hold |
1,653 |
0.85 |
0.81 |
0.77 |
10.2% |
10.4% |
10.1% |
5.6 |
5.2 |
5.1 |
5.8% |
6.3% |
6.4% |
8.5% |
| AMMB Holdings |
AMM MK |
Add |
4,028 |
0.79 |
0.74 |
0.70 |
9.7% |
10.0% |
10.0% |
6.1 |
5.5 |
5.2 |
4.8% |
5.2% |
5.5% |
8.1% |
| Bank Islam Malaysia Bhd |
BIMB MK |
Add |
1,296 |
0.68 |
0.65 |
0.63 |
7.9% |
8.1% |
8.3% |
5.1 |
4.8 |
4.6 |
6.8% |
7.3% |
7.8% |
8.6% |
| Hong Leong Bank |
HLBK MK |
Add |
10,244 |
1.05 |
0.98 |
0.91 |
11.3% |
11.4% |
11.4% |
11.3 |
10.7 |
9.9 |
4.2% |
4.5% |
4.9% |
8.3% |
| Malayan Banking Bhd |
MAY MK |
Add |
28,430 |
1.11 |
1.04 |
0.98 |
10.7% |
10.2% |
10.0% |
7.8 |
7.2 |
6.9 |
6.4% |
6.7% |
7.0% |
6.8% |
| Public Bank Bhd |
PBK MK |
Add |
20,501 |
1.38 |
1.31 |
1.24 |
12.3% |
12.2% |
12.3% |
8.7 |
8.1 |
7.7 |
5.1% |
5.5% |
5.8% |
6.6% |
| RHB Bank Bhd |
RHBBANK MK |
Add |
6,881 |
0.85 |
0.80 |
0.76 |
9.6% |
10.3% |
10.5% |
6.2 |
5.5 |
5.2 |
6.6% |
7.5% |
8.0% |
8.5% |
| Malaysia average |
|
|
|
1.06 |
1.00 |
0.95 |
10.6% |
10.5% |
10.5% |
7.9 |
7.3 |
6.9 |
5.6% |
6.0% |
6.3% |
7.4% |
| Bangkok Bank |
BBL TB |
Add |
8,263 |
0.46 |
0.44 |
0.42 |
7.4% |
7.3% |
7.6% |
3.1 |
3.1 |
2.9 |
6.3% |
6.4% |
7.0% |
3.6% |
| Kasikornbank |
KBANK TB |
Add |
11,784 |
0.66 |
0.63 |
0.60 |
7.4% |
8.3% |
8.8% |
3.8 |
3.6 |
3.4 |
5.6% |
6.5% |
7.1% |
6.0% |
| Kiatnakin Phatra Bank |
KKP TB |
Hold |
1,169 |
0.59 |
0.57 |
0.54 |
7.4% |
7.8% |
8.8% |
3.6 |
3.6 |
3.3 |
6.2% |
6.7%
| 7.9% |
9.0% |
| Krung Thai Bank |
KTB TB |
Add |
9,440 |
0.66 |
0.63 |
0.60 |
8.0% |
8.7% |
9.0% |
3.7 |
3.5 |
3.4 |
5.8% |
6.6% |
7.1% |
2.5% |
| Muangthai Capital |
MTC TB |
Add |
2,734 |
2.04 |
1.73 |
1.46 |
17.2% |
17.9% |
17.7% |
6.5 |
5.6 |
4.9 |
0.8% |
1.0% |
1.1% |
22.1% |
| SCB X |
SCB TB |
Add |
12,353 |
0.81 |
0.80 |
0.78 |
8.3% |
8.5% |
9.3% |
4.2 |
4.1 |
4.0 |
8.2% |
8.5% |
9.4% |
4.5% |
| Srisawad Corporation |
SAWAD TB |
Hold |
1,298 |
1.22 |
1.10 |
0.99 |
13.2% |
13.6% |
14.7% |
5.2 |
4.7 |
4.2 |
3.6% |
3.6% |
3.6% |
5.3% |
| Tisco Financial Group |
TISCO TB |
Hold |
2,403 |
1.78 |
1.74 |
1.70 |
14.7% |
14.6% |
14.4% |
7.8 |
7.4 |
7.4 |
7.0% |
7.0% |
7.1% |
0.3% |
| TMBThanachart Bank |
TTB TB |
Hold |
5,524 |
0.74 |
0.72 |
0.69 |
8.4% |
8.0% |
8.3% |
5.1 |
5.0 |
4.9 |
7.4% |
7.2% |
7.6% |
2.2% |
| Thailand average |
|
|
|
0.70 |
0.67 |
0.64 |
8.1% |
8.5% |
9.0% |
4.0 |
3.9 |
3.7 |
6.3% |
6.7% |
7.3% |
4.7% |
SOURCES: CGSI RESEARCH ESTIMATES, BLOOMBERG, COMPANY REPORTS. DATA AS AT 6 MAY 25.
Recommendation Framework
Stock Ratings:
Add: Total return expected to exceed 10% over the next 12 months.
Hold: Total return expected to be between 0% and positive 10% over the next 12 months.
Reduce: Total return expected to fall below 0% or more over the next 12 months.
Total expected return is the sum of percentage difference between target price and current price, and forward net dividend yields, with a 12-month investment horizon.
Sector Ratings:
Overweight: Stocks in the sector have a positive absolute recommendation on a market cap-weighted basis.
Neutral: Stocks in the sector have a neutral absolute recommendation on a market cap-weighted basis.
Underweight: Stocks in the sector have a negative absolute recommendation on a market cap-weighted basis.
Country Ratings:
Overweight: Investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral: Investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight: Investors should be positioned with a below-market weight in this country relative to benchmark.
Other Significant Financial Interests
As of May 5, 2025, CGS International holds a proprietary position in the securities of United Overseas Bank. As of May 7, 2025, the analyst(s) who prepared this report, and the associate(s), do not have an interest in the securities of United Overseas Bank.
