• Maintain NEUTRAL, with new SGD35.60TP from SGD32, 0% downside. Aside from asset quality, United Overseas Bank reported a positive set of numbers, with capital as a key highlight. Its fully loaded CET-1 ratio is now in line with peers and as such, capital management initiatives are in play. The market has reacted positively to this, with the stock up 7% last Friday. Hence, despite our upgrade to earnings and TP, the potential upside is still limited. In our view, any share price weakness would be a buying opportunity.

• 3Q24 results in line. 3Q24 reported net profit of SGD1.6bn (+13% QoQ, +16% YoY) brought 9M24 PATMI to SGD4.5bn (+5% YoY), at 77-78% of our and consensus FY24F PATMI. We view the results to be in line as rate cuts kick in in 4Q24 while trading income is unlikely to be sustained. Annualised ROE was 12.7% (FY23: 12.5%) while its fully phased-in CET-1 ratio under Basel III reforms was 15.2% – a significant jump from 13.4% in 2Q24. More importantly, UOB is now on par with peers in terms of fully loaded CET-1 ratio vs being 140-210bps lower in 2Q24. Management said the uplift was aided by its conservative approach towards capital computation in Singapore while its ex-Singapore operations were already on the standardised model.

• Results highlights. The key highlight is the 63% QoQ and 71% YoY jump in trading & investment income on stronger customer-related treasury income (+25% QoQ, +36% YoY) thanks to higher bond sales and hedging demand as well as strong non-customer related performance (+140% QoQ, +148% YoY) from trading and liquidity management activities. That aside, loans and CASA growth were very decent, NIM was stable QoQ at 2.05% aided by proactive deposit cost management while the strong income growth led to positive jaws (3Q24 CIR: 42.4% vs 2Q24: 44.1%, 3Q23: 44.4%). Asset quality and credit cost, however, were drawbacks due to operational merger issues from Citi Thailand but the trend should improve over the next two quarters.

• 2025 outlook. UOB anticipates higher total operating income next year, backed by high single-digit loan and double-digit fee growth. It is positive on loan demand from trade, digital and green economy, as well as retail and mortgage. CIR is expected at 41-42%, with Citi integration cost already substantially rolling off this quarter. Credit cost was guided to be within 25- 30bps while the impact from the global minimum tax should be small.

• Capital management – UOB is comfortable with a CET-1 ratio of 13.5-14% and with Basel III reforms having gone live, it now has a better line of sight as to its excess capital (c.SGD2-2.5bn). UOB is exploring available options, including further investing in growth to take advantage of the opportunities in ASEAN (better earnings and dividends), and share buyback. More will be shared in the 4Q24 briefing and UOB thinks the plan can kick off next year. Its 14% mid-term ROE target excludes capital management activities.

• FY24F-26F PATMI is raised by 0%, 2% and 3% while TP is lifted to SGD35.60 (includes a 2% ESG premium) after an update in GGM parameters.

Source: RHB Securities Research - 11 Nov 2024