United Overseas Bank Ltd

Buy. Target price: S$33.00

UOB’S Q1’24 core net profit declined by 1% YoY to S$1.6 billion due to flattish income growth but slightly higher overhead expenses. Despite that, UOB’s results came within our expectations at around 25% of our full-year forecast. Core ROE stood at 14%.

The Net Interest Income (NII) contracted by 2% YoY and 1.7% QoQ. While QoQ performance could be due to a shorter quarter, the YoY decline is attributed to lower net interest margin (NIM), which had narrowed by 12 bps YoY to 2.02% in Q1’24 due to a softening in the loan margin. Overall loans were of little changed QoQ but rose by a modest 2% YoY to S$323 billion, as the 1% and 3% loan growth increases in Singapore and North Asia help cushion the softer loan growth in the Asean-4 (Malaysia, Thailand, Indonesia, Vietnam).

Total deposits broadened by 3% YoY (-2% QoQ), driven by deposits gathered in North Asia (+6% YoY), Singapore (+5% YoY) and Asean-4 (+1% YoY). Total customer deposits rose by 4% YoY (+1% QoQ), while Wholesale funding declined by 1% YoY (-16% QoQ). CASA deposits improved YoY, widening the CASA/Deposit ratio to 50.6% from 47.9% in March 2023.

Q1’24 fee income improved by 5.1% YoY and 1.9% QoQ to S$580 million due to a pick-up in loan-related fees and the wealth management business. Meanwhile, the credit card fees slipped, as management noted that the segment is normalising from the previous quarter’s seasonal high. Wealth fees also recovered at an encouraging pace of 8.6% YoY and 5.1% QoQ.

Elsewhere, Trading and Investment Income Surged to S$521 million in Q1’24 From S$362 million in Q4’23 and S$474 million a year ago, anchored by resilient customer-related treasury income due to increased retail bonds sales and strong hedging demands.

Rolling valuations forward to FY25, we adjust UOB’s TP to S$33.00 from S$32.10. BUY reiterated on UOB.