CGS International covering the report. May 7, 2025
United Overseas Bank: Navigating Uncertainty with Caution and Resilient Performance
Executive Summary
United Overseas Bank (UOB) is demonstrating a cautious approach amidst ongoing global trade tensions, which management highlighted as a source of uncertainty for FY25F growth targets. While credit quality remained robust in 1Q25, UOB proactively recognized 16 basis points (bp) in general provisions (GPs) to bolster its provision coverage. Despite challenges, the bank maintains resilient net interest margins (NIMs) and a strong capital position. CGS International reiterates an Add call on UOB but has slightly lowered the target price to S$38.60, reflecting a marginal reduction in FY25F-27F earnings per share (EPS) estimates by 4.2-4.9%, anticipating a likely stagnation in profit for FY25F.
More Tools to Maintain NIMs
During the analyst briefing on May 7, 2025, UOB management reported an exit NIM of 1.98% for 1Q25, a slight 2bp dip from the 1Q25 average of 2.00%. The bank’s ability to maintain resilient NIMs is attributed to several factors:
A steadily increasing Current Account/Savings Account (CASA) ratio since 1Q24.
Growth in the loan book, which saw a 5.7% year-on-year increase.
Active management of deposits within its wholesale banking division.
These strategies help mitigate downward pressure on NIMs stemming from lower interest rates. Management indicated UOB possesses further levers to manage funding costs and stave off NIM pressures, such as the adjustment of interest rates on high-interest savings products like the UOB One account, effective May 1, 2025. However, the report suggests that potentially steeper rate cuts by the US Federal Reserve, coupled with a lagged effect of loan repricing, could intensify margin pressure in the second half of 2025.
Assessing Second-Order Impacts from Tariffs
Trade-related loans constitute approximately 10% of UOB’s total loan book as of 1Q25. Of this, about 20% originates from customers with direct exposure to the US, translating to roughly 2% of UOB’s total loan book being directly subject to US trade tariffs. Management believes the direct impact of these tariffs is limited.
Nevertheless, due to the difficulty in assessing the potential second-order impacts, such as a potential slowdown in the global economy resulting from trade tensions, management has withheld its previous FY25F guidance. In response to this uncertainty, UOB proactively recognized 16bp in general provisions (GPs) in 1Q25 to strengthen its overall provision coverage.
Revised Outlook and Reiterated Add Call
CGS International maintains an Add recommendation for UOB. The rationale is based on the expectation that UOB’s earnings will remain resilient in FY25F. This resilience is supported by the fact that approximately 85% of its loan book is concentrated in ASEAN and Greater China, regions that could potentially benefit from the re-routing of trade flows away from the US market.
However, the report anticipates that UOB will continue to recognize higher general provisions for the remainder of FY25F. Consequently, CGS International has revised down its FY25F-27F EPS estimates by 4.2-4.9%. This adjustment reflects a projected slight net profit decline of 1.3% year-on-year in FY25F.
The GGM-based target price has been reduced to S$38.60 from the previous S$38.80.
Capital Management and Potential for Increased Distribution
UOB has a S$3 billion capital distribution plan underway. CGS International estimates that UOB could have an additional S$1 billion in excess capital remaining upon the completion of this original plan. This suggests potential scope for UOB to increase the scale of its capital distribution to shareholders.
An illustration of UOB’s excess capital position is provided:
Risk-weighted assets (RWA) in FY24 were S$259,835m.
CET-1 capital adequacy ratio in FY24 was 15.5%.
Common Equity Tier 1 (CET-1) in FY24 was S$40,275m.
The ideal CET-1 ratio is considered 14.0%.
Excess capital (a) is estimated at S$3,898m.
The capital reduction exercise includes a share buyback (b) of S$2,000m (estimated duration: 3 years, FY25F-FY27F) and an FY25F capital reduction dividend (c) of S$0.50 per share, totaling S$836m based on 1,672m shares outstanding.
Remaining excess CET-1 capital is estimated at S$1,062m (a – b – c), equivalent to S$0.63 per share.
Re-rating Catalysts and Downside Risks
Potential re-rating catalysts for UOB identified in the report include:
Increased trade-related flows within the ASEAN region supporting buoyant loan growth for FY25F.
An abatement of global trade tensions.
Key downside risks highlighted are:
Drastic interest rate cuts by the US Federal Reserve leading to pressure on NIMs.
Escalating trade tensions.
A slowdown in global economic growth.
Financial Summary
Here is a summary of UOB’s financial performance and projections:
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Net Interest Income |
9,679 |
9,674 |
9,832 |
10,064 |
10,244 |
| Total Non-Interest Income |
4,303 |
4,620 |
4,967 |
5,500 |
6,106 |
| Operating Revenue |
13,982 |
14,294 |
14,799 |
15,564 |
16,350 |
| Total Non-Interest Expenses |
-6,217 |
-6,310 |
-6,500 |
-6,735 |
-6,978 |
| Pre-provision Operating Profit |
7,765 |
7,984 |
8,299 |
8,829 |
9,372 |
| Total Provision Charges |
-921 |
-926 |
-1,203 |
-895 |
-936 |
| Operating Profit After Provisions |
6,844 |
7,058 |
7,096 |
7,935 |
8,436 |
| Pretax Income/(Loss) from Assoc. |
93 |
93 |
95 |
97 |
99 |
| Operating EBIT (incl Associates) |
6,937 |
7,151 |
7,191 |
8,032 |
8,535 |
| Non-Operating Income/(Expense) |
0 |
0 |
0 |
0 |
0 |
| Profit Before Tax (pre-EI) |
6,937 |
7,151 |
7,191 |
8,032 |
8,535 |
| Exceptional Items |
|
|
|
|
|
| Pre-tax Profit |
6,937 |
7,151 |
7,191 |
8,032 |
8,535 |
| Taxation |
-1,138 |
-1,092 |
-1,201 |
-1,341 |
-1,425 |
| Consolidation Adjustments & Others |
|
|
|
|
|
| Exceptional Income – post-tax |
350 |
188 |
0 |
0 |
0 |
| Profit After Tax |
6,149 |
6,247 |
5,990 |
6,690 |
7,109 |
| Minority Interests |
-14 |
-14 |
-12 |
-13 |
-14 |
| Pref. & Special Div |
0 |
0 |
0 |
0 |
0 |
| FX And Other Adj. |
0 |
0 |
0 |
0 |
0 |
| Preference Dividends (Australia) |
|
|
|
|
|
| Net Profit |
6,135 |
6,233 |
5,978 |
6,677 |
7,095 |
| Recurring Net Profit |
6,135 |
6,233 |
5,978 |
6,677 |
7,095 |
| Normalised Net Profit |
5,799 |
6,059 |
5,990 |
6,690 |
7,109 |
Key Ratios and Drivers
Selected key ratios and drivers for UOB:
|
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Total Income Growth |
20.8% |
2.2% |
3.5% |
5.2% |
5.0% |
| Operating Profit Growth |
23.4% |
2.8% |
3.9% |
6.4% |
6.1% |
| Pretax Profit Growth |
19.9% |
3.1% |
0.6% |
11.7% |
6.3% |
| Net Interest To Total Income |
69.2% |
67.7% |
66.4% |
64.7% |
62.7% |
| Cost Of Funds |
2.83% |
2.96% |
2.53% |
2.32% |
2.29% |
| Return On Interest Earning Assets |
5.10% |
5.08% |
4.54% |
4.27% |
4.17% |
| Net Interest Spread |
2.27% |
2.12% |
2.01% |
1.95% |
1.88% |
| Net Interest Margin (Avg Deposits) |
2.57% |
2.45% |
2.42% |
2.44% |
2.44% |
| Net Interest Margin (Avg RWA) |
3.59% |
3.61% |
3.74% |
3.71% |
3.64% |
| Provisions to Pre Prov. Operating Profit |
11.9% |
11.6% |
14.5% |
10.1% |
10.0% |
| Interest Return On Average Assets |
1.88% |
1.82% |
1.82% |
1.83% |
1.82% |
| Effective Tax Rate |
16.4% |
15.3% |
16.7% |
16.7% |
16.7% |
| Net Dividend Payout Ratio |
49.1% |
52.6% |
69.3% |
52.6% |
51.8% |
| Return On Average Assets |
1.13% |
1.14% |
1.10% |
1.21% |
1.26% |
| Net interest margin (%) |
2.1% |
2.0% |
2.0% |
1.9% |
1.9% |
| Net interest income growth (%) |
16.0% |
-0.1% |
1.6% |
2.4% |
1.8% |
| Non-interest income growth (%) |
33.1% |
7.4% |
7.5% |
10.7% |
11.0% |
| Cost-income ratio (%) |
44.5% |
44.1% |
43.9% |
43.3% |
42.7% |
| Net loan growth (%) |
0.5% |
5.3% |
3.4% |
4.6% |
4.5% |
| Deposit growth (%) |
4.6% |
4.8% |
1.0% |
2.0% |
2.0% |
| Loans-deposits ratio (%) |
82.2% |
82.7% |
84.6% |
86.8% |
88.9% |
Valuation Methodology
The target price of S$38.60 is derived using the Gordon Growth Model (GGM) valuation method. The key inputs used in the model are:
Cost of Equity (COE): 10.0%
Sustainable ROE: 12.5%
Long-Term Growth (LTG): 2.0%
Target P/BV (x): 1.32 (Calculated as (ROE-LTG) / (COE-LTG))
FY25 BVPS (S$): 29.17
Sector Comparison
The report provides a comparison of UOB with other banks in Singapore and across Indonesia, Malaysia, and Thailand, based on data as of May 7, 2025.
| Company |
Bbg Ticker |
Recom. |
Price (local) |
Tgt Price (local) |
Mkt Cap (US\$ m) |
3-year EPS CAGR (%) |
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 |
| DBS Group |
DBS SP |
Hold |
42.76 |
43.10 |
94,254 |
0.8% |
1.76 |
1.72 |
1.68 |
16.4% |
16.3% |
16.1% |
8.9 |
8.8 |
8.7 |
7.2% |
7.7% |
8.3% |
| OCBC |
OCBC SP |
Hold |
16.27 |
17.20 |
56,811 |
2.5% |
1.24 |
1.18 |
1.12 |
12.6% |
12.8% |
12.5% |
8.6 |
8.3 |
8.0 |
6.5% |
6.6% |
5.8% |
| United Overseas Bank |
UOB SP |
Add |
34.49 |
38.60 |
44,730 |
5.7% |
1.12 |
1.05 |
0.99 |
11.5% |
12.6% |
12.6% |
6.9 |
6.5 |
6.2 |
7.2% |
6.1% |
6.4% |
| Singapore average |
|
|
|
|
|
2.6% |
1.40 |
1.35 |
1.29 |
13.7% |
14.0% |
13.9% |
8.3 |
8.0 |
7.7 |
7.0% |
7.0% |
7.1% |
| Bank Central Asia |
BBCA IJ |
Add |
9,075 |
12,350 |
68,011 |
6.3% |
3.97 |
3.64 |
3.35 |
21.7% |
21.4% |
21.3% |
14.8 |
13.6 |
12.5 |
3.4% |
3.7% |
4.0% |
| Bank Jago |
ARTO IJ |
Add |
1,915 |
3,000 |
1,614 |
na |
3.02 |
2.85 |
na |
4.2% |
7.3% |
na |
25.3 |
14.7 |
na |
0.2% |
0.5% |
na |
| Bank Mandiri |
BMRI IJ |
Add |
4,950 |
6,500 |
28,087 |
7.9% |
1.50 |
1.38 |
1.26 |
19.2% |
19.5% |
19.9% |
4.7 |
4.2 |
3.8 |
7.4% |
8.1% |
9.1% |
| Bank Rakyat Indonesia |
BBRI IJ |
Add |
3,910 |
4,900 |
36,026 |
5.8% |
1.79 |
1.70 |
1.62 |
17.7% |
19.4% |
20.5% |
4.9 |
4.6 |
4.2 |
8.2% |
9.5% |
10.5% |
| Bank Tabungan Negara |
BBTN IJ |
Add |
1,055 |
1,250 |
900.1 |
7.7% |
0.43 |
0.40 |
0.37 |
9.5% |
9.6% |
9.8% |
1.7 |
1.6 |
1.4 |
5.4% |
5.8% |
6.4% |
| Bank Tabungan Pensiunan Nasional Syariah |
BTPS IJ |
Add |
1,240 |
1,500 |
580.7 |
17.9% |
0.92 |
0.85 |
0.78 |
13.3% |
14.4% |
14.8% |
3.6 |
3.2 |
3.0 |
2.8% |
6.9% |
8.1% |
| Indonesia average |
|
|
|
|
|
na |
2.24 |
2.08 |
na |
18.8% |
19.5% |
na |
7.1 |
6.5 |
na |
5.5% |
6.2% |
na |
| Affin Bank Berhad |
ABANK MK |
Reduce |
2.62 |
2.76 |
1,569 |
7.2% |
0.53 |
0.52 |
0.50 |
4.4% |
4.6% |
5.0% |
8.1 |
7.3 |
6.7 |
3.3% |
3.5% |
3.9% |
| Alliance Bank Malaysia Berhad |
ABMB MK |
Hold |
4.46 |
5.27 |
1,631 |
8.5% |
0.84 |
0.80 |
0.76 |
10.2% |
10.4% |
10.1% |
5.5 |
5.1 |
5.0 |
5.9% |
6.3% |
6.5% |
| AMMB Holdings |
AMM MK |
Add |
5.30 |
6.39 |
4,138 |
8.1% |
0.81 |
0.76 |
0.72 |
9.7% |
10.0% |
10.0% |
6.3 |
5.6 |
5.4 |
4.7% |
5.1% |
5.4% |
| Bank Islam Malaysia Bhd |
BIMB MK |
Add |
2.45 |
3.13 |
1,312 |
8.6% |
0.69 |
0.66 |
0.63 |
7.9% |
8.1% |
8.3% |
5.2 |
4.9 |
4.6 |
6.7% |
7.2% |
7.7% |
| Hong Leong Bank |
HLBK MK |
Add |
20.00 |
31.40 |
10,244 |
8.3% |
1.05 |
0.98 |
0.91 |
11.3% |
11.4% |
11.4% |
11.3 |
10.7 |
9.9 |
4.2% |
4.5% |
4.9% |
| Malayan Banking Bhd |
MAY MK |
Add |
10.00 |
12.80 |
28,544 |
6.8% |
1.11 |
1.05 |
0.98 |
10.7% |
10.2% |
10.0% |
7.9 |
7.2 |
6.9 |
6.4% |
6.7% |
7.0% |
| Public Bank Bhd |
PBK MK |
Add |
4.47 |
5.81 |
20,501 |
6.6% |
1.38 |
1.31 |
1.24 |
12.3% |
12.2% |
12.3% |
8.7 |
8.1 |
7.7 |
5.1% |
5.5% |
5.8% |
| RHB Bank Bhd |
RHBBANK MK |
Add |
6.75 |
7.25 |
6,953 |
8.5% |
0.86 |
0.81 |
0.77 |
9.6% |
10.3% |
10.5% |
6.2 |
5.6 |
5.2 |
6.6% |
7.4% |
7.9% |
| Malaysia average |
|
|
|
|
|
7.4% |
1.07 |
1.01 |
0.95 |
10.6% |
10.5% |
10.5% |
8.0 |
7.3 |
7.0 |
5.6% |
6.0% |
6.3% |
| Bangkok Bank |
BBL TB |
Add |
143.0 |
170.0 |
8,380 |
3.6% |
0.47 |
0.45 |
0.43 |
7.4% |
7.3% |
7.6% |
3.1 |
3.1 |
3.0 |
6.2% |
6.4% |
6.9% |
| Kasikornbank |
KBANK TB |
Add |
164.5 |
184.0 |
11,966 |
6.0% |
0.67 |
0.64 |
0.61 |
7.4% |
8.3% |
8.8% |
3.9 |
3.7 |
3.5 |
5.5% |
6.4% |
7.0% |
| Kiatnakin Phatra Bank |
KKP TB |
Hold |
47.50 |
52.00 |
1,207 |
9.0% |
0.61 |
0.59 |
0.56 |
7.4% |
7.8% |
8.8% |
3.8 |
3.7 |
3.4 |
6.0% |
6.5% |
7.6% |
| Krung Thai Bank |
KTB TB |
Add |
22.80 |
25.00 |
9,783 |
2.5% |
0.69 |
0.66 |
0.63 |
8.0% |
8.7% |
9.0% |
3.8 |
3.6 |
3.5 |
5.6% |
6.3% |
6.9% |
| Muangthai Capital |
MTC TB |
Add |
43.75 |
54.00 |
2,847 |
22.1% |
2.13 |
1.80 |
1.53 |
17.2% |
17.9% |
17.7% |
6.8 |
5.8 |
5.1 |
0.8% |
0.9% |
1.1% |
| SCB X |
SCB TB |
Add |
120.0 |
130.0 |
12,405 |
4.5% |
0.81 |
0.80 |
0.78 |
8.3% |
8.5% |
9.3% |
4.2 |
4.1 |
4.0 |
8.2% |
8.4% |
9.4% |
| Srisawad Corporation |
SAWAD TB |
Hold |
28.75 |
34.00 |
1,333 |
5.3% |
1.25 |
1.13 |
1.01 |
13.2% |
13.6% |
14.7% |
5.3 |
4.9 |
4.3 |
3.5% |
3.5% |
3.5% |
| Tisco Financial Group |
TISCO TB |
Hold |
98.00 |
99.00 |
2,409 |
0.3% |
1.78 |
1.74 |
1.70 |
14.7% |
14.6% |
14.4% |
7.8 |
7.4 |
7.4 |
7.0% |
7.0% |
7.1% |
| TMBThanachart Bank |
TTB TB |
Hold |
1.89 |
1.86 |
5,611 |
2.2% |
0.75 |
0.73 |
0.71 |
8.4% |
8.0% |
8.3% |
5.2 |
5.1 |
5.0 |
7.3% |
7.1% |
7.5% |
| Thailand average |
|
|
|
|
|
4.7% |
0.71 |
0.68 |
0.66 |
8.1% |
8.5% |
9.0% |
4.1 |
3.9 |
3.8 |
6.2% |
6.6% |
7.2% |
This table presents key metrics like P/BV, ROE, P/PPOPS, and Dividend Yield for DBS Group, OCBC, United Overseas Bank, Bank Central Asia, Bank Jago, Bank Mandiri, Bank Rakyat Indonesia, Bank Tabungan Negara, Bank Tabungan Pensiunan Nasional Syariah, Affin Bank Berhad, Alliance Bank Malaysia Berhad, AMMB Holdings, Bank Islam Malaysia Bhd, Hong Leong Bank, Malayan Banking Bhd, Public Bank Bhd, RHB Bank Bhd, Bangkok Bank, Kasikornbank, Kiatnakin Phatra Bank, Krung Thai Bank, Muangthai Capital, SCB X, Srisawad Corporation, Tisco Financial Group, and TMBThanachart Bank.
ESG Profile
UOB was assigned a B+ combined ESG score by LSEG in 2024, driven particularly by an A+ score in the Social pillar. The bank operates under five guiding principles for sustainability and four overarching strategies to integrate ESG into its operations. Noteworthy improvements were observed in the Social and Governance pillars, influenced by efforts in human rights, management practices, and CSR strategy. UOB has also enhanced its learning and development program, Better U, focusing on employee skills. Its inclusion in the Bloomberg Gender-Equality Index in 2023 underscores its commitment to workplace diversity.
ESG Controversy: In 2021, UOB faced a product responsibility controversy where customer information was disclosed due to a scam affecting a staff member. The report suggests UOB has since reviewed internal controls and implemented safeguards, viewing this as a one-off event unlikely to significantly impact valuations unless further breaches occur.
ESG Highlights: UOB is seen as strong among Singapore bank peers in the Environmental pillar and ranks well in the Social pillar, emphasizing human rights. Its Responsible Financing Policy prohibits financing companies involved in forced/child labor or violations of indigenous rights. This proactive stance is viewed favorably and could warrant a premium valuation as ESG mandates become more prominent.
ESG Trends: From 2019 to 2024, UOB improved its Social and Environmental scores from B+ to A+. Improvements in human rights, management, and CSR were partially offset by relative deteriorations in emissions, workforce, and environmental innovation categories. While not explicitly factored into current valuations, these progressive ESG improvements are expected to be appreciated by ESG-focused investors, potentially justifying a valuation premium.
Important Disclosures
This report is prepared by CGS International. It is intended for distribution to CGS International clients and is based on data believed to be correct and reliable at the time of issue. CGS International does not guarantee the accuracy or completeness of the information and disclaims liability for any consequences arising from reliance on this report. The report contains estimates and forecasts based on reasonable assumptions but past performance is not indicative of future results.
CGS International and its affiliates, directors, associates, and employees may hold positions in the securities discussed and may engage in investment banking or advisory services for the covered companies. CGS International may share report contents with the covered company and make amendments following such disclosure.
The analyst certifies that the views expressed accurately reflect their personal opinions and were prepared independently. Analyst compensation is not directly tied to specific recommendations or investment banking transactions, but may be based on coverage and performance. Information barriers are used to manage conflicts of interest.
As of May 7, 2025, CGS International holds a proprietary position in United Overseas Bank securities. The analyst preparing the report and their associates do not hold a personal interest in the securities covered as of the same date.
This report is general information and not investment advice. Investors should conduct their own evaluation and consult financial advisors. Distribution is restricted in certain jurisdictions like Australia, Canada, China, France, Germany, Hong Kong, Indonesia, Ireland, Malaysia, New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland, Thailand, United Arab Emirates, United Kingdom, European Economic Area, and the United States, and is generally intended for professional, institutional, or sophisticated investors. Specific restrictions and requirements apply in each jurisdiction. In the United States, the report is distributed by CGS International Securities USA, Inc. to U.S. Institutional Investors.
Recommendation Framework
Stock Ratings Definitions:
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 includes price difference to target and forward net dividend yield. Investment horizon for target prices is 12 months.
Sector Ratings Definitions:
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 Definitions:
Overweight: Investors should be positioned with an above-market weight in this country relative to the benchmark.
Neutral: Investors should be positioned with a neutral weight in this country relative to the benchmark.
Underweight: Investors should be positioned with a below-market weight in this country relative to the benchmark.
The report includes a Spitzer Chart showing UOB’s price history and recommendations over a two-year period. As of the quarter ended March 31, 2025, CGS International’s rating distribution across 551 covered companies was 71.0% Add, 20.9% Hold, and 8.2% Reduce. The percentage of investment banking clients within each rating category was 1.3% for Add, 0.7% for Hold, and 0.4% for Reduce.
