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Here’s How United Overseas Bank Ltd Shares Has Outstripped The Market’s Returns By Almost 3X

Singapore’s Straits Times Index (SGX: ^STI) plays host to 30 of the largest companies in the Lion City. But one company has beaten the market’s returns by almost three times.

United Overseas Bank Ltd (SGX: U11) delivered a solid 46% in total returns over the last three years. In comparison, the STI posted total returns of just 16.4% for the same period. Let’s take a closer look at how the local bank performed during this period.

A Closer Look

Founded in 1935, UOB has established itself as a regional bank with a presence in 19 countries. Let’s have a look at its finances to see if this outperformance is warranted.

Source: UOB’s earnings presentation

The graph above summarises how UOB has performed for the past three years.

UOB’s net interest income has grown steadily rising from S$4.92 billion in 2015 to S$5.53 billion in 2017. The growth was driven by an increase in the bank’s loan book which increased from S$203.6 billion to S$232.2 billion over the same period. Meanwhile, net interest margin remained relatively stable between 1.71% and 1.77%.

Source: UOB’s earnings presentation

Meanwhile, we also see an upward trend in UOB’s non-interest income which comprises fee & commission income, trading & investment income and other income. The rise in non-interest income over the last three years was mostly due to an increased contribution from the fee & commission income segment.

As a whole, UOB total revenue (which includes its net interest income and non-net interest income) has seen solid growth over the past three years rising from S$7.38 billion in 2015 to S$8.12 billion to 2017.

With the increase in UOB’s revenue, we see a similar increase in the bank’s net income and earnings per share (EPS). Net income increased from S$3.21 billion in 2015 to S$3.39 billion in 2017 while the bank’s EPS rose from S$1.94 to S$1.99 over the same period.

Elsewhere, UOB’s total customer deposits saw a steady increase from S$240.5 billion in 2015 to S$272.7 billion in 2017 respectively. During this period, the bank’s loan-to-deposit ratio has remained relatively stable, ranging from 84.7% to 85.1%. These metrics provide investors a view on how aggressive the bank is in lending out money. To be sure, loans are the part and parcel of being a bank. But we also want our banks to be prudent. The amount of risk the bank takes is reflected in its loan-to-deposit ratio.

To close, let’s look at UOB’s dividend over the past three years.

Source: UOB earnigns presentation

From the table above, we can see that UOB has increased its dividend in 2017 paying out S$1.00, a 25% increase compared to 2015. The bank’s payout ratio are still within an acceptable range, going from 45% to 49% over the last three years.

Overall, UOB has been performing reasonably well for the past three years, and it should come as no surprise that the market has acknowledged its performance by pushing up its share price. Today, UOB sports a market capitalisation of S$44.8 billion, and has a dividend yield of 3.7%.

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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own any of the shares mentioned. 

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore has recommended shares of UOB. Motley Fool Singapore writer Chin Hui Leong does not own any of the shares mentioned.