The movement in shares of SGX-listed United Overseas Bank (SG:U11) has been muted since its first-quarter update in late April. Despite a solid performance in the first quarter, U11 share price is down over 6% year-to-date. Global macro uncertainty and China’s weak economic data are weighing on SGX-listed shares, including that of UOB, one of the leading banks in Singapore.
Moreover, the net interest income tailwind due to higher interest rates is expected to fade in the quarters ahead. Further, banks might witness a rise in bad debts due to a weakening economy and a potential recession.
Recent Performance and the Road Ahead
Headquartered in Singapore, UOB has an extensive network of around 500 offices in 19 countries and territories in Asia Pacific, Europe, and North America.
UOB reported a 74% year-over-year surge in its core net profit in the first quarter to S$1.6 billion. Results were driven by a 43% rise in net interest income and a 66% growth in non-interest income that benefited from increased trading and investment income. Additionally, the bank’s asset quality remained resilient, with the non-performing loan (NPL) ratio staying stable at 1.6% compared to Q4 2022 as well as Q1 2022.
UOB is on track to complete the integration of its acquisition of Citigroup’s (NYSE:C) consumer banking business in four Southeast Asian markets – Indonesia, Malaysia, Thailand, and Vietnam. The acquisition was made last year to boost the bank’s ASEAN (Association of Southeast Asian Nations) retail presence outside of the home market of Singapore. UOB has completed the integration of the acquired consumer banking businesses in Malaysia, Thailand, and Vietnam.
With the integration of the Indonesia business expected to be completed by the end of 2023, UOB expects these four markets to boost the bank’s overall revenue by S$1 billion on a full-year basis.
Looking ahead, UOB projects low-to-mid single-digit loan growth in 2023 and double-digit fee growth.
Analysts Stay Bullish
Despite concerns that the net interest margin of Singapore banks, including UOB, has already peaked, four analysts reiterated a Buy rating on U11 shares last month.
Most recently, UBS analyst Aakash Rawat reaffirmed a Buy rating on U11 shares with a price target of S$33.
What is the Target Price for UOB?
Based on six Buys and five Holds, UOB scores a Moderate Buy consensus rating. The average price target of S$32.95 implies about 18% upsi
Aside from UOB, another SGX share with an attractive upside is SATS Ltd. (SG:S58), a leading provider of food-related solutions across various industries. It specializes in aviation, commercial, and institutional catering, and other food services, including distribution.
Analysts have a Moderate Buy consensus rating for SATS Ltd. shares based on four Buys and two Hold recommendations. The average price target of S$2.93 implies nearly 14% upside potential.
Conclusion
UOB’s strong balance sheet, solid liquidity, and expansion in additional markets through the acquisition of Citigroup’s consumer banking businesses in four markets position it well for long-term growth. Considering the uncertainty around global macro conditions and recovery in China, analysts are cautiously optimistic on United Overseas Bank and see the current pullback is an opportunity to buy U11 shares.
