United Overseas Bank Delivered A Record Result, But Is It The Bank Of Choice?

Investment Thesis

Our only vulnerability to nan financial manufacture successful Singapore is done DBS Group (OTCPK:DBSDY) which we regularly screen present connected Seeking Alpha.

However, Singapore has 3 homegrown banks and immoderate international players, which person a overmuch smaller marketplace stock of nan user market.

Some of our avid readers person asked america astir United Overseas Bank Limited (OTCPK:UOVEY), known arsenic conscionable UOB, arsenic they are invested successful this bank.

Apart from being a customer of UOB, we person not yet invested successful it.

Let america analyse really these 2 banks comparison and look astatine which 1 is nan amended campaigner successful our view.

5-years stock value improvement of UOB and DBS (SA)

Since nan ample driblet successful stock prices that took spot erstwhile nan pandemic deed us, DBS has gone up more than UOB.

However, fto america look astatine their financial results, business prospects, and imaginable risks.

FY 2022 Financial Results

Just for illustration DBS Group, their adjacent UOB besides delivered a grounds nett profit for nan year.

It came successful astatine SGD4.57 billion, including one-off items. That was an summation of 12%. To beryllium fair, we should usage their halfway operating nett profit earlier one-off items. When we do that, we get an summation of 18%.

When we comparison UOB pinch DBS, we request to carnivore successful mind that DBS is doubly arsenic large, pinch double nan nett profit. DBS besides grew its nett profit by 20%. In that respect, it is 1-0 to DBS.

UOB's nett liking income jumped 31% to SGD8.3 cardinal connected nan backmost of 3% indebtedness maturation and a 30 ground constituent NIM improvement.

Net interest income, which was SGD2.1 billion, remained soft arsenic anemic marketplace sentiment weighed connected wealthiness guidance and loan-related activities. All nan banks successful Singapore person seen little fees from their wealthy clients arsenic their liking to waste and acquisition and to do truthful connected separator was muted owed to nan antagonistic banal market.

All nan banks astir apt expect this to prime up erstwhile location is much optimism amongst their clients.

Let america look astatine ROE, which is different bully measurement to find really overmuch profit it makes, considering nan magnitude of equity it holds.

We cognize that DBS managed to amended its ROE successful 2022 from 12.5% to 15%. UOB, connected nan different hand, delivered a overmuch little ROE of 11.9%. Therefore, nan people goes to 2 - 0 successful favour of DBS.

UOB's CFO Lee Wai Fai communicated during his FY 2022 presentation to investors and analysts that they are looking to present an ROE larger than 13% by 2026.

Asset value remained benign, pinch a non-performing indebtedness (NPL) ratio astatine 1.6% astatine UOB. When we comparison it to DBS, we spot that DBS has a amended NPL of 1.1%. We will not usage this successful our scorecard betwixt nan 2 banks, but it is bully to know. To measure if a slope holds capable superior to withstand a daze pinch losses increasing, we request to cognize really overmuch superior nan slope has. This is referred to arsenic Common Equity Tier 1, aliases CET-1.

UOB has a CET-1 ratio of 13.3% which is considered adequate. DBS does person a higher CET-1 ratio of 14.6%

In position of valuation, we tin see nan stock value to its nett book value. When we initiate a position, we for illustration to spot a number adjacent to 1, however, those are difficult to find these days. HSBC is nan only 1 that comes to our mind pinch a P/NAV of 0.89.

UOB's NAV per stock is SGD24.24 erstwhile we return into relationship their perpetual superior securities. If we were to exclude this, it becomes SGD27.39.

With a stock value of SGD29.85, UOB's Price/NAV is 1.23 against DBS's Price/NAV of 1.64.

This brings nan people to 2 - 1 successful favour of DBS.

Returning Capital to Shareholders

Those that travel america present connected Seeking Alpha, cognize that we expect companies to return immoderate of nan superior to their shareholders successful nan shape of a dividend and/or stock buybacks.

UOB's guidance has projected to their committee to salary retired a last dividend of SGD0.76 per mean share. Together pinch nan interim dividend of SGD0.60 already paid out, nan full dividend for FY 2022 will beryllium SGD1.35 per mean share.

This is simply a payout ratio of astir 49%.

UOB dividend history (UOB 2022 FY Financial - CFO presentation)

The dividend output of UOB is 4.5% against DBS's output of 4.36% if we exclude their typical dividend this year. If we see nan typical dividend fixed this twelvemonth astatine DBS, we get a output of 5.8%.

The difference, based connected nan normal dividends, excluding immoderate typical dividend, is not large, truthful we telephone this a tie successful our scorecard betwixt nan 2 banks.

No stock buyback took spot successful 2022, and they person not planned for immoderate stock buybacks successful 2023.

Business Prospects

As we person pointed retired successful our last article connected DBS, Singapore is simply a mini state pinch conscionable 5 cardinal people. Therefore, maturation will person to travel from markets overseas.

DBS has grown nan pastry pinch businesses successful Hong Kong and nan Greater Bay Area surrounding Hong Kong. More tin travel from India, successful our opinion.

UOB besides had to look elsewhere for growth, Last year, they bought Citigroup's (C) user businesses successful Malaysia and Thailand which was completed successful November. The completion for Indonesia and Vietnam is planned for this year.

This strategical acquisition should thief UOB to standard up nan unit franchise pinch accrued merchandise offerings and cross-sell opportunities. Their unit customer guidelines has expanded to astir 7 cardinal successful nan region.

Risk to Thesis and Conclusion

The consequence to nan thesis for UOB is very akin to that of DBS, which you tin publication astir successful that article.

UOB has traditionally been a celebrated slope for Singapore's SMEs. DBS, connected nan different hand, mightiness person much ample organization clients. In periods of recessions, SMEs thin to beryllium deed difficult and this could beryllium of immoderate interest for UOB.

We return to nan mobility of asking which of nan 2 banks is nan champion finance proposal.

As we are already invested successful DBS, we shall effort not to autumn into nan confirmation bias trap and take DBS arsenic a consequence of this.

Purely connected fundamentals, nan people of 2-1 is successful favour of DBS.

From our acquisition arsenic a customer of some nan banks, we do consciousness that DBS has an separator successful position of their easiness of usage connected their net platforms, and it seems they are much elastic and innovative than what we spot from UOB.

From an finance constituent of view, we person much religion successful DBS increasing its business further than that of nan family-controlled UOB.

We would still favour DBS, which we for nan clip being person a Hold stance on. The aforesaid goes for UOB, we would initiate our sum pinch a Hold stance for them arsenic well.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

Tudor Investment Holdings Private Limited is simply a Singapore based finance company. Its investments are successful commercialized existent property and managing a world portfolio of investments successful equities and bonds.