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CGS International keeps ‘add’ call on UOB with unchanged TP following the bank’s recent visit to KL

Ashley Lo
Ashley Lo • 3 min read
 CGS International keeps ‘add’ call on UOB with unchanged TP following the bank’s recent visit to KL
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CGS International (CGSI) analysts Andrea Choong and Lim Siew Khee have maintained their “add” call on United Overseas Bank U11 -

(UOB) with an unchanged target price of $33.30 after CGSI hosted UOB’s management in a non-deal roadshow in Kuala Lumpur (KL) earlier this month. The event took place from June 6 to 7.   

“We got the sense that investors remained fairly confident in the bank’s medium-term outlook notwithstanding the impending US Fed fund rate cuts,” say the analysts in their report dated June 17. 

Choong and Lim add that queries from investors focused on UOB’s net interest margin (NIM) trajectory, wealth management proposition and the progress of its Citi integration, which UOB acquired in 2022. 

The analysts note that funding cost management remains a “key priority” for UOB following its efforts in reducing its fixed deposit rates, shortening available placement tenors and in raising its current account savings account (CASA) such as through winning cash management mandates from corporates. 

UOB is optimistic in boosting its NIM in 3QFY2024 - 4QFY2024. Despite UOB’s flattish loan yields over 2QFY2024 due to the lack of investment demand, Choong and Lim add that management plans to boost overall income by placing out its excess liquidity into interbank products. 

Additionally, Choong and Lim note that wealth preservation continues to be the focus of UOB’s wealth management value proposition. 

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“At present, UOB is working on its customer risk profiling capabilities to place its asset under management (AUM) into relevant investment products,” the analysts write. 

Currently, the bank estimates that around 40% to 50% of its AUM is placed as fixed deposits. 

With the bank’s strength residing in its connectivity in Southeast Asia (SEA), the analysts note that the growth of its wealth management segment ultimately reflects the volatility and risk sentiment of the region. To compare, North Asia accounted for around 10% of its AUM at the end of 1QFY2024. 

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Due to the retail banking segment having higher return on equities (ROE), UOB has set its longer-term aim to raise return on equities of its regional franchises through the integration of Citi. The analysts see the progress of the integration of Citi as “on track” with integration costs set to taper off substantially from 3QFY2024 onwards. 

“In our view, UOB’s value proposition to investors is its structurally steady growth model,” say Choong and Lim.

With the bank’s medium target to achieve a 1.8% to 1.9% return of risk-weighted assets (RORWA) and a common equity tier 1 (CET-1) ratio of 14%, the analysts see that this could allow sufficient capacity for 8% y-o-y loan growth which contributes to a 10% y-o-y net profit, 14% ROE and a dividend payout ratio of around 50% over the medium term. 

“We look forward to earnings synergies to materialise from the integration of its newly acquired Citi franchise,” they add. 

That said, potential downside risks identified by Choong and Lim include a drastic US Fed rate cut which could negatively impact the bank’s NIMs. 

As at 12.10pm, shares in UOB are trading at 18 cents higher or 0.59% up at $30.69. 


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