Analysts are mixed on United Overseas Bank U11 (UOB), following the bank’s corporate day, held in Kuala Lumpur on Aug 14, where it unveiled its 2026 financial targets and roadmap.
CGS International’s (CGSI) analysts Andrea Choong and Lim Siew Khee have lowered their target price to $34.50 from $36.50 previously, but have kept their “add” call. DBS Group Research’s Lim Rui Wen has upgraded her call to “buy” with a higher target price of $34.50.
CGSI’s Choong and Lim highlight that UOB’s strategy is built on capturing the connectivity flows between Greater China and Asean, and intra-Asean. At its corporate day, it showcased its next generation of leaders, while running through the business strategy from wholesale, retail, private banking and the integration of its Citi portfolio.
UOB’s goal is to sustain its return on equity (ROE) at about 14%, increase income from Asean-4 countries (Indonesia, Malaysia, Thailand and Vietnam), while maintaining income from Singapore at a minimum of about 50%. It also aims to raise its proportion of non-interest income to about 37%, and reduce its cost income ratio to about 40%.
CGSI’s analysts note that fees are a key priority to defend against the falling interest rates. Net income margins (NIM) should start tapering off as interest rates get cut, but UOB expects a pick-up in business volumes to make up for these, they add.
“Fee growth will be a key priority going forward, particularly from wealth management, trade and customer treasury,” the analysts note. “It plans to leverage on its Asean franchise for stronger income contributions.”
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Among the bank’s strategies is to double its trade loan volumes and raise its retail current account savings account (CASA) ratio to about 55% by FY2026, to drive wealth and card incomes to make up about 50% of retail income.
The analysts add that UOB also aims to increase its private bank asset under management (AUM) to $145 billion by FY2026, and increase its relationship manager headcount to 400 from 278 in FY2023.
UOB also aims to shift its cost mix from staff towards technology and explore offshoring some middle and back-office functions to KL, they note.
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“UOB’s overall message of sustaining ROE at about 14% towards FY2026 is encouraging, especially given impending interest rate cuts, though fee uplift could take some time. We lower our gordon growth model (GGM)-based target price to $34.50 as we factor in the likelihood of steeper US Fed fund rate cuts in FY2024-FY2025 and adjust our COE higher to 11.4% (from 11.2% previously),” Choong and Lim end.
Likewise, Lim from DBS notes that UOB’s acquisition of Citigroup’s consumer business in the Asean-4 countries allows it to accelerate, scale up and deepen its Asean franchise.
The analyst also highlights UOB’s active management of deposit costs, noting that the bank has started to adjust its wholesale fixed deposit rates since December 2023. “UOB also continues to lead the market in cutting retail fixed deposit rates since 2H2023,” she adds.
“Previously, management assumed three rate cuts and guided for FY2024 NIMs at the about 2% levels. With the increasing possibility of there being no rate cuts during FY2024, we believe there is further upside to UOB’s FY2024 earnings,” Lim says.
She remains watchful of asset quality risks in the uncertain macroeconomic and high-interest rate environment, especially for commercial real estate (CRE) exposures, noting that UOB’s average loan-to-value (LTV) for office CRE continues to be about 50%, providing a buffer in the event underlying collateral valuations collapse.
The analyst’s GGM-based target price represents about 1.1x FY2025, at the average of UOB’s 15-year historical forward price to book value multiple, which she says is an undemanding valuation.
“We believe there is further earnings upside and the share price will be well supported by its strong provisions buffer of 101% and forward dividend yield of about 6%. We pencil in earnings revision of 1%-6% through FY2026,” she ends.
As at 12.39pm, shares in UOB are trading 14 cents higher or 0.460 cents up at $30.57.
