DBS Group Research has maintained its “Hold” rating on United Overseas Bank (UOB), citing concerns over asset quality and revising the price target to SGD33.90 from the previous SGD32.70. The revision comes after UOB’s second-quarter results for 2025 showed revenue and net profit missing consensus estimates by 3% and 9%, respectively. The bank’s net interest margin also narrowed by 9 basis points quarter-on-quarter due to lower asset yields amid declining benchmark rates.
UOB’s acquisition of Citigroup’s consumer businesses in several ASEAN countries is seen as a strategic move to expand its franchise. However, the integration’s success remains crucial for achieving long-term synergies. The bank’s management has revised its return on equity (ROE) guidance downwards from 14% to a range of 12%-13%, amidst macroeconomic uncertainties and an escalating trade war environment.
The report also notes that UOB’s asset quality is under scrutiny, particularly due to a higher formation of non-performing assets (NPAs) in the second quarter, driven by a specific US commercial real estate exposure. Despite this, UOB’s average loan-to-value for office commercial real estate remains at approximately 50%, providing some buffer against potential valuation collapses.
DBS Group Research’s revised price target is based on the Gordon Growth Model, reflecting an environment of slower growth and accelerating rate cuts. Key risks identified include deteriorating asset quality and faster-than-expected Federal Reserve rate cuts, which could impact earnings estimates.
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