OCBC Investment Research strategist Carmen Lee has kept her “hold” call on United Overseas Bank U11 (UOB) with an unchanged fair value estimate of $33.50 after the bank’s shares reached a new high of $33.38 on Sept 23.
Despite the softer interest rate outlook, the bank’s shares have risen by 17% year-to-date (ytd), per Lee’s Sept 24 report.
“The last time UOB crossed the $33.30 level was in July before it fell 12.2% to $29.25 by August. Since then, it has been on an uptrend and the stock touched a new all-time high yesterday (intra-day high of $33.38 on Sept 23), up almost 14% to wipe off the recent losses,” she says.
With an interim dividend of 88 cents declared for 1HFY2024 ended June 30, UOB’s yield is at a “compelling” 5.3%, ahead of its historical 10-year average of 4%. It is also higher compared to most Singapore-listed stocks and above the recent Singapore six-month T-bill cut-off yield of 3.1%. Save for the Singapore REITs, Lee notes that the Singapore banking sector ranks the highest in terms of dividend yields among the components of the Straits Times Index.
“We believe part of the funds which have been investing in T-bills will be flowing out and looking for alternative assets that will yield higher returns,” says Lee.
Looking ahead, the analyst notes that rates are expected to decline further in the coming quarters and the US presidential election is also likely to contribute to market volatility in 4Q2024. As such, any downside to UOB’s share price will be “well-supported” by its dividend yield.
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Even though the analyst expects the bank’s net interest margin (NIM) to “see some pressure” in FY2025, UOB’s overall performance is likely to be mitigated by a healthy double-digit growth in fee income.
As at 3.44pm, shares in UOB are trading 17 cents lower or 0.52% down at $32.35.
