United Overseas Bank – Steady delivery

Excerpts from Maybank report

United Overseas Bank (SGX: U11)

• United Overseas Bank 1Q24 core-earnings were marginally ahead of MIBG/Street expectations. This was bolstered by trading income which is volatile.
• Operationally, we see slower growth for NII led by peaking loan yields and slow loan growth. Wealth management is a bright spot that needs to be watched as well as higher for longer interest rates keeping NIMs supported.
• Amidst slower growth, we see limited prospects for dividend surprises in the near term.

Raise TP to SGD31.03. Maintain HOLD.

Upside to fees. Trading gains volatile

Trading related income jumped +32% QoQ led by United Overseas Bank own trading and liquidity management activities. Management claims the current run rate is sustainable for the rest of the year. While we upgrade 2024E NoII by 3% to reflect this, visibility of this sustaining is limited, in our view. Fees gained slight momentum +2% QoQ driven by a pick in wealth management. The Group is strategizing to move more clients towards higher fee wealth products from fixed deposits going forward, which bodes well for further growth in this segment. Credit card contribution to total fees was 15.5% vs. 15% a year ago, showing limited gains from lifestyle activities such as partnering the Taylor Swift concerts.

NII growth limited. Asset quality to remain supported

NII fell -2% YoY and QoQ. Some of this is due to a shorter quarter from CNY holidays, but NIMs also fell -12bps YoY and flat QoQ. While the funding mix has improved with CASA rising to 50.6% (vs. 48.9% 4Q23), this did not seem to be enough to offset peaking loan yields. Loans have grown at 2% YoY largely in North Asia and RoW. Management is guiding for low, single digit growth for 2024E pointing to limited demand in this high rate environment. A higher for longer rate environment is likely to keep loan growth in check, although we are watching for upgrade opportunities to margins going forward. Asset quality, on the other hand, remains stable (NPLs flat at 1.5% QoQ), while limited systemic risks are observed.

Valuation/Recommendation

Management is unlikely to review its 50% dividend payout guidance in the near-term. We also note a CET1 of 13.9%, while high, is not excessive especially amidst current uncertainty. As a result, we see limited upside to dividend upgrades or special dividends going forward. Post results, we raise 2024-25E EPS by 1-2%. Our multi-stage DDM (COE 9.1%, 3% terminal) TP to SGD31.03 from SGD30.88. Maintain HOLD

You can find the full report here and the bank website here.