Analysts remain upbeat on Oversea-Chinese Banking Corp (OCBC) following its 3QFY2021 results, which came in slightly above forecasts.

RHB Group Research analysts are calling the third quarter “resilient despite lingering headwinds”. They are maintaining “buy” on OCBC Bank with a target price of $15.10, which represents a 26.9% upside. 

In a Nov 5 note, RHB Group Research analysts note that the bank’s 3QFY2021 results are in line with expectations. 

This includes net profit of $1.22 billion, up 5% q-o-q and 19% y-o-y, which lifted 9M2021 earnings to $3.89 billion, up 58% y-o-y. This accounts for 78% of RHB and consensus FY2021F forecasts. 

The sequential rise in 3QFY2021 earnings was mainly led by higher profits from life insurance, up 28% q-o-q, and lower allowances, down 30% q-o-q. 

Net interest income (NII) was flat as healthy loan growth of 4% q-o-q was mitigated by the 6bps net interest margin (NIM) compression, notes RHB. 

See: OCBC reports Q3FY2021 earnings of $1.22 billion, up 19% y-o-y on lower allowances

See also: Opportunities and challenges as OCBC and UOB beat expectations in 3Q2021

On lingering NIM pressure, RHB cites lower asset yields, interest reversal from downgrade of accounts in Malaysia and Indonesia and lower gapping income. “Given keen competition for quality loans, management expects NIM to stay at 1.51-1.52% through to 1HFY2022 before interest rate upcycle in late-2022 lifts NIM.”

Non-interest income dipped 1% q-o-q as trading income fell 61% q-o-q. Common equity tier-1 (CET-1) ratio was 15.5%, compared to 16.1% in the previous quarter.

“We raised net profit up by 2-3% for FY2021F-2023F as we factor in assumptions of lower provisions and higher profit contributions from associates,” write RHB.

Meanwhile, UOB Kay Hian analyst Jonathan Koh notes the pick-up in loan and deposit growth at OCBC Bank. 

In a Nov 5 note, Koh is maintaining “buy” on OCBC Bank with a lowered target price of $15.35 from $15.65. The new target price represents an upside of 29.3%.

“Earnings grew 19% y-o-y in 3QFY2021 and were slightly above our forecast,” says Koh. 

NIM was dragged lower by “one-off factors”, says Koh, such as interest reversals from downgrades of secured consumer loans in Malaysia and lower gapping income. 

“OCBC provides attractive dividend yield of 4.2% for 2021 and 4.7% for 2022.”

Koh is anticipating stellar loan growth in 2022. “Management guided high single-digit loan growth for 2022. The pick-up in loan growth in 2H21 is expected to be sustained into 2022.”

Koh also notes that OCBC Bank has minimal on-shore exposure to Mainland China. “China’s on-shore and off-shore loans accounted for 11% of OCBC's total loans… On-shore exposures accounted for 2% of total loans. Of these, less than one-third is corporate loans for real estate developers, primarily through network customers. Non-performing loan (NPL) ratio for Greater China loans is low at 0.3%.”

Koh notes that OCBC is also achieving its target for sustainable finance. “OCBC has secured lending commitments of $30 billion for green and sustainable finance, which has surpassed its goal of $25 billion by 2025. It aims to increase double lending to SMEs to $3 billion by end-2021.”

DBS Group Research analyst Lim Rui Wen thinks OCBC Bank’s “strong business momentum” will continue. 

“We believe there is further room for OCBC’s share price to re-rate as we continue to expect economic recovery and as we look ahead to a higher interest rate environment, which should bode well for OCBC’s NIM towards 2HFY22F. OCBC continues to see broad-based strong loan growth momentum into next year, amidst firm wealth management performance with increased opportunities in the Greater Bay Area arising from OCBC’s partnership with Ping An Bank in China’s Wealth Management Connect Scheme,” writes Lim in a Nov 5 note. 

Lim is maintaining “buy” on OCBC Bank with a target price of $14, which represents an 18% upside. 

That said, deteriorating asset quality is a key risk. “Larger-than-expected NPLs as well as a worse-than-expected pandemic situation globally could unwind expectations of credit cost and NPL declines and pose risks to earnings,” adds Lim. 

As at 2.11pm, shares in OCBC Bank are trading 9 cents higher, or 0.76% up, at $11.96.