Thursday, February 22, 2024

Added UOB: A Steady and Growth Bank Play without the Fireworks

Amidst great expectations of bonus shares or special dividends like its DBS counterpart, the share price of UOB (SGX: U11) has corrected from the high of $29.68 in past days to test short term support level of $28.50 at 1.14 times its book value of around $25.

UOB has announced a record $6.1 billion profit for the financial year 2023 early this morning, underpinned by strong net interest income, trading and investment income. This is a 26% increase from FY 2022. If factoring in the Citigroup integration costs, net profit is S$5.7 billion, also a landmark high.

Most notably, net interest income rose 16% to S$9.7 billion. Net interest margin rose 23 basis points to 2.09% and loan growth of 2% in constant-currency terms.

Net fee income increased 4% to S$2.2 billion as credit card fees surged to S$382 million.

However core operating expenses rose 15% to S$6.8 billion and total allowance for credit and other losses on a few non-systematic accounts rocketed 53% to $921 million, higher than $590 million by DBS.

Asset quality remained stable with non-performing loan (NPL) ratio at 1.5%, which is higher than DBS's NPL ratio of 1.1%.

Most importantly to long-term investors of UOB, the dividend announced is $0.85, same rate as 1H FY2023. There is no special dividends nor bonus shares as wished, hence disappointing the market and resulted in the weakening of its share price today.

I believe that UOB is still an attractive steady long-term investment prospect of a growth bank business with yields close to 6%, at payout ratio of about 50%. This is despite headwinds in the economy, uncertainties over interest rates and increasing core operating expenses and write-offs. 

I find timing the market difficult and prefer to invest in banks during times of uncertainty rather than waiting for the booming economy or ideal circumstances before doing so. In a perfect scenario, we may have to pay inflated prices i.e. 1.5x to 2x book value for bank shares. I will perform dollar-cost average into adding bank shares.

I believe UOB is more conservative and defensive relative to DBS and OCBC because it has greater presence in regional domestic markets, larger focus on South East Asia growing and youthful economies, best valuation at only 1.14x book value whilst being the smallest bank in Singapore. OCBC on the other hand, has greater presence in China and Hong Kong while DBS is penetrating into south Asia economies in Taiwan and India.

Ideally, it is great to own all 3 banks to have the best of all worlds. With limited resources and based on priority now, I decided to focus on accumulating UOB first.

I was owning 617 UOB shares and required 383 more to round up to 1,000 shares.

There it goes and my order was filled at $28.68 today.

My order for 83 odd shares was then filled at $28.69.

I will now own 1,000 UOB shares, looking forward to collect $0.85 dividends 2 times this year and greater dividends in the years to come.

The share price of UOB continue to test lower short-term support levels and I will monitor and may add more shares.

My next hunting targets will be OCBC which will be announcing its results on 28 Feb, and DBS. Here I come.

See Related Posts:

Nibbled UOB

Own the banks or let banks own our money

Thanks for reading,

With love & peace,

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