SINGAPORE (Jan 17): UOB Kay Hian is maintaining its “buy” call on OCBC with a target price of $14.88 given the bank is expected to report a “solid set of results” for 4Q17.
The research house is forecasting net profit at $923 million, up 17% y-o-y but down 13% q-o-q as 3Q17 earnings were previously boosted by robust contribution from its insurance business and moderation in credit costs.
Net trading income for the quarter is expected to come in at $130 million.
In a Wednesday report, analyst Jonathan Koh expects the bank to register positive loan growth of 1.5% q-o-q in 4Q on higher trade loans, residential mortgages and conglomerate expanding overseas via real estate development and hospitality projects.
Koh is of the view that OCBC is on track to meet its projected loan growth of 7.4% for 2017 after completing the acquisition and consolidation of National Australia Bank’s (NAB) private wealth business in Singapore and Hong Kong which is expected to contribute US$1.7 billion of mortages for overseas properties.
Meanwhile, the analyst expects higher 4Q net interest margin (NIM) of 1.67%, driven mainly by NIM expansion in Singapore, although he expects overall NIM to recede by 2bp to 1.65% due to lacklustre NIM recorded over 1H17.
“Fees from wealth management maintained positive growth momentum in 4Q17 as high net worth clients continued to adopt a risk-on approach in their investments. Trade and loans related fees also contributed to healthy growth. Overall, we expect fees to increase by double-digit rate of 16.7% y-o-y,” says Koh.
Operationally, he expects the bank’s insurance arm, Great Eastern, to maintain healthy growth in new weighted sales and stable new business embedded value (NBEV) margin.
“We also expect small mark-to-market losses from [Great Eastern’s] bond portfolio in Malaysia to be offset by gains from equities in Singapore and Malaysia. Insurance business, encompassing life and property & casualty, is expected to contribute earnings of $205 million,” he adds.
As at 12.07pm, shares in OCBC are trading 4 cents lower at $13.17 or 13.4 times FY18 earnings.
