In today’s turbulent market, marked by escalating geopolitical tensions, sustained inflation, and looming global recession risks, pinpointing stable and growth-oriented investments is paramount. United Overseas Bank Ltd (SGX: U11), commonly known as UOB, shines brightly in this challenging backdrop. For retail investors on the hunt for both safety and reliable returns, UOB presents a compelling case.
Here are five reasons that make it a standout choice.
1. Attractive dividends and stellar financial health
Boasting an attractive forward dividend yield of around 7% and a remarkable Q3 2023 net profit of S$1.48 billion (despite Citigroup integration costs), UOB demonstrates its commitment to rewarding its investors while maintaining fiscal strength.
2. Focus on a defensive strategy
UOB emphasised a defensive strategy for FY2024 during its Q3 2023 earnings presentation, citing looming macroeconomic uncertainties. Prioritising the strengthening of its balance sheet, the bank outlined various proactive measures taken in 3Q 2023. Notably, UOB opted for reduced margins by channelling funds into less profitable but more liquid interbank assets, ensuring a robust liquidity and funding status (net stable funding ratio at 121% and liquidity coverage ratio at 153%).
Management hopes to keep FY2024 Net Interest Margin (NIM) steady at current levels of around 2.1% (expected for FY23F). The bank anticipates one more US Fed Fund rate hike in 2023 and for these rates to remain steady until a cut, if any, in the latter half of 2024. UOB does not expect material movements in Singapore dollar interest rates from the Fed rate hike as it believes the direct correlation between the two has eased.
3. Driving growth with the acquisition of Citigroup
Beyond mere numbers, UOB’s merger with Citigroup opens doors to an expansive realm of cross-selling opportunities. Citigroup’s integration process is currently underway, and this will drive earnings growth and synergies going forward.
4. Diversified income streams
The bank’s strategic push towards diversifying its income – evident from its boom in credit card and loan-related fees – ensures it has multiple revenue pillars. In Q3 2023, there was a remarkable surge in credit card fees, showing a 44% quarterly increase and an impressive 89% growth year-on-year (yoy). Loan-related fees also saw a significant uptick, with a 19% rise quarter-on-quarter and a 5% increase yoy.
However, Trading and Investment (T&I) income dipped by 22% in 3Q23 relative to the preceding quarter. Although customer-related treasury income held its ground, other T&I segments grappled with the volatility in investments. This scenario underscores the critical role of diversified income streams in weathering economic volatilities, offering not just a safeguard against market downturns but also ensuring consistent returns.
5. Visionary roadmap for 2024 and beyond
UOB’s blueprint for the future, as outlined by its CEO, is nothing short of ambitious. Plans for mid-single-digit loan growth, surging fee growth, and meticulously managed credit costs demonstrate a bank that’s not just surviving but thriving. For investors, this means being part of a journey that’s set on an upward trajectory.
UOB offers both safety and growth potential for investors
In today’s unpredictable market, it is important to find places to put your money where it is safe and can also grow. UOB is one of those places. The bank not only boasts an enticing dividend but also prides itself on a robust financial standing. UOB’s deliberate defensive strategy, coupled with its promising growth trajectory – especially with the Citigroup acquisition – underscores its commitment to drive growth. Additionally, its diversified income streams and a well-articulated future strategy further augment its appeal.
For those considering a long-term investment, UOB represents a compelling proposition. However, as with all investments, it is imperative to exercise due diligence and remain cognizant of potential risks, ensuring a balanced and informed approach to securing one’s financial future.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.
