UOB Remains a Strong Investment Option Despite Q1 2024 Profit Dip

May 8, 2024

United Overseas Bank Ltd (UOB) (SGX: U11), Singapore’s third-largest bank, recently reported a slight dip in net profit for the first quarter of 2024 (Q1 2024). Despite this, its earnings result beat the consensus estimate, and analysts remain optimistic about its FY2024 performance.

Here’s why UOB continues to be a solid investment choice:

Stable Earnings

Although UOB’s net profit fell by 2% in Q1 2024 to S$1.49 billion, it was partly due to one-off integration costs from Citigroup’s consumer units in four ASEAN markets. Excluding these, core net profit only dipped by 1% to S$1.57 billion, demonstrating the bank’s stability. Notably, the other 1% dip was due to a 2% drop in its net interest income.

Nonetheless, the bank maintained its guidance for low single-digit loan growth, double-digit fee growth, positive growth in total revenue, stable cost-to-income ratio at about 41%, and credit cost at the lower end of 25-30 basis points.

Steady Net Interest Margins (NIM)

UOB maintained a steady NIM of 2.02% in Q1 2024, with loans gaining momentum by 3% year-on-year (YoY). Net fee income rose by 5% YoY, driven by loan-related, wealth management, and credit card fees. Other non-interest income was also up by 3%, led by record trading and investment income.

Robust Treasury Income

The bank saw a significant increase in treasury income, rising by 10% YoY, contributed by customer-related retail bond sales, hedging demand amid investors’ rate cut expectation, as well as strong performance from trading and liquidity management activities. This robust performance in treasury activities bodes well for potential dividend payouts to shareholders.

Consistent Asset Quality

UOB’s asset quality remained stable, with a non-performing loan ratio at 1.5%. The bank said performing loans coverage is at 0.9%, meaning that for every dollar of performing loans, the bank has reserved 90 cents as a precaution. Meanwhile, the non-performing assets coverage stood at 99% or 204% after taking collateral into account. This reflects the bank’s prudent risk management practices.

Franchise Growth

While UOB core business franchise performed well, Citigroup’s integration is also progressing well. As at end-Q1 2024, UOB had completed the integration of Citi’s retail franchise in Malaysia, Indonesia and Thailand. The integration in Vietnam is expected to be completed by next year. With a stronger franchise in the region, the bank is now focusing on cross-sell synergies and stated that it is gaining good traction.

Lingering Risks

One key downside risk is the potential impact of drastic Federal Reserve’s rate cuts which will affect UOB’s NIM. However, the rate cuts are now likely to occur towards the last quarter of 2024, mitigating immediate concerns.

Our analysts put an ‘add’ call on UOB with target price of S$33.30, forecasting a dividend yield of 6.1% for FY2024. The bank’s promising sound performance continues to make it a resilient choice for investors seeking consistent returns.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.

First Quarter 2024 Performance Highlights (uobgroup.com)
UOB – CGS International (May 8, 2024)

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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