Banks led by DBS propel STI to new all-time high

Date: February 24, 2025

• The STI rose 52 points or 1.3% to 3,929.94 for the week, led by DBS’s 4% jump
• The index closed at a new all-time high of 3,934.04 on Wed
• Gains came despite slide on Wall St because of economic worries
• Probability of US interest rate cut in first half up from 52 to 64%
• UOB Q4 profit up 8.6% at S$1.52b, beat expectations; special dividend proposed
• Analysts raise UOB target prices
• SingPost’s Q3 operating profit down 23.8% at S$21.1m, will retrench 45 employees
• SIA’s Q3 net profit rose 146.7% on one-off non-cash gain from Air India-Vistara merger
• Seatrium reported full-year profit of S$120.9, proposes final dividend

 

A new all-time high for the STI

In a week during which Wall Street plunged sharply because of worries over the economy, the three local banks led by a 4% jump in DBS helped push the Straits Times Index to a new all-time closing high 3,934.04 on Wednesday. Although some of the momentum was lost on Thursday and Friday, the STI still managed to register a gain of 52 points or 1.34% for the week at 3,929.94.

For the week, DBS added S$1.78 or 4% at S$46.62, UOB rose S$0.32 or 0.8% to S$38.38 and OCBC’s gain was S$0.33 or 1.9% at S$17.73.

US stocks fall on concerns over weak economy, chance of rate cut in first half up to 64%

Over in the US, Walmart’s weak outlook prompted a market slide on Thursday, and the latest survey from the University of Michigan on Friday added to worries about the U.S. consumer.

Walmart had a strong holiday quarter, as anticipated, but missed lofty expectations for its full-year forecast. The retailer expects sales to grow 3% to 4%, while analysts were looking for the higher end of that range.

Consumer discretionary on Friday was the S&P 500’s worst-performing sector with a decline of more than 2.6%. Industrials were also down 2.3% in the wake of weak flash Purchasing Managers Index readings from S&P Global. The surveys of activity in the manufacturing and services sectors are closely watched economic indicators.

Meanwhile, minutes of the Fed’s January monetary policy committee meeting showed that policymakers wanted to see further progress on inflation before adjusting interest rates. Inflation will be in the spotlight next week with the release of the January core personal consumption expenditures price index—widely seen as the central bank’s preferred inflation gauge.

For the week, the Dow Jones Industrial Average and Nasdaq Composite fell 2.5% whilst the S&P 500’s loss was 1.7%.

Traders are now pricing in a 64% chance that the Federal Reserve cuts interest rates at least once in the first half of the year, according to the CME FedWatch Tool. That’s up from 52.8% on Thursday.

UOB Q4 profit up 8.6% at S$1.52b, beat expectations; special dividend proposed

UOB reported a net profit of S$1.52 billion for the fourth quarter ended December, up 8.6% from S$1.4 billion in the previous corresponding period.

This included S$17 million in one-off expenses from the lender’s Citigroup integration costs after taxes, which was 81.9% lower than the S$94 million recorded in the same period the previous year.

The earnings beat the S$1.48 billion consensus forecast in a Bloomberg survey of six analysts.

For the full year, net profit was up 5.8% at a record S$6.05 billion. Excluding the one-off Citigroup integration costs, core net profit would be S$6.23 billion.

Annualised earnings per share stood at S$3.56 for FY2024, up from S$3.34 the year before.

Net interest income for the full year was stable at S$9.67 billion, driven by healthy loan growth.

The lender has proposed a higher final dividend of S$0.92 per share for the half-year period, from S$0.85 the year before.

This brings the full-year dividend to S$1.80 per share, representing a payout ratio of about 50 per cent. The lender is also proposing a special dividend of S$0.50 per share, paying out S$800 million of UOB’s surplus capital, over two tranches in 2025.

As part of the bank’s capital distribution strategy, the board has announced a S$3 billion package to distribute surplus capital over the next three years. The package comprises special dividends and share buybacks.

This includes the introduction of a S$2 billion share buyback programme, where shares will be acquired from the open market and cancelled.

Analysts raise UOB target prices

Maybank Securities raised its target price for UOB by nearly 15% to S$44.32 from S$38.75, with a “buy” rating. RHB maintained its “buy” rating, and raised its target price to S$41.60 from S$40.20.

OCBC investment research maintained its “hold” rating but raised its fair-value estimate of the stock to S$41.50 from S$37.50. Morningstar also raised its fair-value estimate for UOB to S$41 from S$40.

Maybank said: “While margins should be under pressure, the group’s integrated Asean strategy can catalyse fees and credit growth going forward. This can also help diversify the loan book towards growth sectors with better credit quality such as digital economy, data centres and consumer device production.”

Alongside capital management, Maybank Securities’ head of equity research Thilan Wickramasinghe forecasts UOB’s return on equity (ROE) for FY2025 to FY2027 to be “at least three percentage points higher than the past 10 years”.

“A structurally higher ROE should drive higher valuations, in our view,” he said.

RHB’s estimate for UOB’s FY2025 dividend per share is lifted to S$2.12 from S$1.94.

The research house said that in the near term, investors stand to enjoy an estimated dividend yield of 6.1% for 2025. It thinks that the lender is “well-poised to capture trade and investment flows arising from the shift in supply chains”.

OCBC’s Carmen Lee, head of investment research, also projected an increase in base dividend. From a base dividend in FY2024 of S$1.80 and S$0.50 special dividend, OCBC is projecting an increase to S$1.90 for FY2025. That does not take into account any special dividend.

SingPost’s Q3 operating profit down 23.8% at S$21.1m, will retrench 45 employees

Singapore Post’s group operating profit for the third quarter ended December fell 23.8% to S$21.1 million as operating expenses for its Singapore and International business units outpaced revenue growth.

“The decline was driven primarily by ongoing macroeconomic pressures, including higher inflation, supply chain disruptions and a highly competitive environment,” said the company.

Group revenue however for the quarter rose 12.1% to S$510.6 million Q3 is a “seasonally high period” for SingPost’s businesses. The company said that the improved top line comes as lower contributions from its Singapore and International businesses were outweighed by revenue growth in its Australia segment and property leasing.

Singapore Post earlier in the week announced it will lay off around 45 workers in the coming months, as part of efforts to trim operations and let its business units take on more corporate functions.

The move affects positions primarily in corporate support units, a SingPost spokesperson told The Straits Times. A “small number” of staff from its international business unit will also be affected because the roles have evolved.

SingPost’s spokeperson said the restructuring is the result of prolonged macroeconomic challenges facing the business, including intense competition.

SIA’s Q3 net profit rose 146.7% on one-off non-cash gain from Air India-Vistara merger

Singapore Airlines’ net profit surged 146.7%to S$1.6 billion for the third quarter ended Dec 31, 2024 thanks to a one-off non-cash accounting gain of S$1.1 billion from the completion of the Air India-Vistara merger in November 2024.

SIA’s operating profit grew at a more modest year-on-year pace of 3.3% to S$629 million as revenue climbed 2.7% to S$5.2 billion. The airline said it expects the demand for air travel to stay healthy in the last quarter of FY2025, even amid a competitive operating landscape, as yields and capacity normalise post-pandemic.

In a report titled “Finally a solid quarter’’ Maybank said it is increasing its FY25-27E core earnings per share for SIA by 4-9% to factor in greater operating leverage on higher revenue and lower fuel price assumptions.

“Our target price is slightly raised to S$6.45 (still pegged at 1.25x FY25E P/B) but retain HOLD due to limited upside’’ said the broker.

Seatrium reported full-year profit of S$120.9, proposes final dividend

Seatrium swung into the black with a net profit of S$120.9 million for the second half ended Dec 31, from a net loss of S$1.8 billion in the same period a year earlier.

Together with a H1 turnaround, the offshore and marine specialist marked its first full-year profit since its reconstitution in 2023.

The H2 earnings were attributed to higher contributions from revenue recognition, fair-value gain on investments, as well as share of profit from associates.

On its return to profitability, Seatrium has proposed a final dividend of S$0.015 per share. It will be paid on May 19, after the record date of May 7.

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