Analysts trim UOB target price as margin squeeze and rising costs cloud 2027 outlook
Jefferies downgrades the bank to ‘hold’; Maybank bucks the trend with an upgrade to ‘buy’
[SINGAPORE] Analysts have cut their target price for UOB as shrinking lending margins and rising operating costs are projected to pressure its earnings in 2027 – despite the bank’s improving wealth management and loan growth.
CGS International, Citi, Jefferies, Maybank and RHB lowered their target prices on the bank upon the release of its third-quarter results on Wednesday (Nov 4), although their recommendations diverged.
Maybank upgraded the counter to “buy” from “hold”, citing improving wealth and loan growth momentum.
UOB’s wealth-management fees hit a record S$258 million in the third quarter ended Sep 30, 2026.
Maybank wrote in a report on Wednesday (Nov 4): “Amid rising rates, better loan growth and execution of its strategic initiatives, we think risks for upside surprise are now higher.”
RHB said on Thursday that while competition clouds UOB’s net interest margin (NIM) outlook, loan growth has picked up at the fastest year-on-year pace since the second quarter of 2022.
It added that core fees were “healthy”, and that new non-performing assets (NPA) had nearly halved quarter-on-quarter.
RHB trimmed its earnings estimates on the bank, but noted that UOB’s forecasted profit after tax and minority interests (Patmi) growth for FY27 was “still decent”, adding that the valuation gap to peers is “too wide to ignore”.
UOB’s net profit for the third quarter came in at S$1.25 billion, missing the S$1.38 billion consensus forecast among six analysts polled by Bloomberg.
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It posted a 182.2 per cent jump in Q3 net profit off a low base of S$443 million in the year-ago period; it was when earnings were weighed down by S$1.36 billion in allowances for credit and other losses amid macroeconomic uncertainties and sector-specific headwinds.
Margin compression
The main concern among analysts was UOB’s NIM, a key measure of profitability.
During UOB’s earnings briefing on Wednesday, its management noted that full-year NIM is now likely to come in below its earlier guidance of 1.75 to 1.8 per cent, even as net interest income in 2027 is projected to surpass this year’s levels.
UOB’s third-quarter NIM narrowed to 1.68 per cent, from 1.82 per cent in the year before, dragged down largely by higher funding costs.
Citi analyst Tan Yong Hong said UOB is unlikely to ride the wave of higher interest rates to the same extent as its peers.
He said that management had “downplayed” the bank’s sensitivity to the rising Singapore Overnight Rate Average (Sora), citing tighter lending spreads amid competition, the repricing of fixed rate assets and higher funding costs.
UOB now expects a one-basis-point rate movement to affect its bottom line by S$3 million to S$4 million, making its earnings the “least geared to interest rates”, relative to DBS and OCBC.
Citi reiterated its “sell” rating and lowered its target price to S$35.30.
Meanwhile, Jefferies’ analysts said that “wealth growth is unlikely to offset NIM pressure and higher investment spending quickly enough”. The brokerage downgraded the stock to “hold” and slashed its target price to S$42 from S$48.
Higher operating expenses in 2027
Analysts also pointed to the bank’s guidance for a mid-to-high single-digit increase in operating costs for 2027 as a concern.
Citi said this guidance was a “negative surprise” compared to the consensus expectation of roughly 4 per cent growth.
Jefferies noted that for FY27/28, higher fee income is “more than offset” by operational expenditure growth.
“In our view, the heavier investment cycle raises execution risk, as revenue must accelerate to absorb higher costs while NIM stays under pressure,” Jefferies’ analysts added.
Similarly, CGS International cited higher operating costs as a reason for cutting FY27 and FY28 earnings estimates; it noted that accelerated spending on IT infrastructure and wealth management staffing would “dampen” near-term return on equity.
Asset quality also drew mixed views.
While RHB noted that NPAs nearly halved quarter-on-quarter, Citi argued that lower NPA coverage, combined with NPA formation concentrated in mainland China, Taiwan and Hong Kong “likely gave investors little confidence” amid “murky asset quality trends”.
Jefferies’ analysts also sounded a similar note of caution.
“With the earnings inflection back-end loaded and risks in (mainland China, Taiwan and Hong Kong) not fully resolved, execution risk has increased,” they added.
Shares of UOB closed S$0.63 or 1.6 per cent lower at S$37.81 on Thursday.
