Following Oversea-Chinese Banking Corporation (OCBC)’s 1HFY2022 ended June results on Aug 3, CGS-CIMB Research analysts say the bank’s asset quality remains resilient.
OCBC reported earnings of $1.48 billion in the 2QFY2022 ended June, 28% higher than earnings of $1.16 billion in the same period the year before. This brings the bank’s earnings for the 1HFY2022 to $2.84 billion, up 7% y-o-y, and said to be a new high for the bank.
CGS-CIMB Research analysts Andrea Choong and Lim Siew Khee have the highest target price among the research houses mentioned here. In an Aug 3 note, Choong and Lim are maintaining “add” on OCBC Bank with a higher target price of $15.50 from $14.20 previously.
In the latter half of the year, net interest income (NII) growth is set to offset a lacklustre wealth management segment, write Choong and Lim. “We expect some 25 bps y-o-y net interest margin (NIM) growth in FY2022F.”
In terms of loan growth, the bank is on track to meeting its mid-single digit target for FY2022F, say the CGS-CIMB analysts. “With NIM expansion coming in at a more aggressive pace than expected in 2QFY2022 (up 16 bps q-o-q), further NII upside from the more recent Fed rate hikes in June and July should cushion softer non-interest income in 2HFY2022F. On non-II, wealth management income could stay lacklustre in 2HFY2022F as customers remain risk-off amid sustained financial market volatility.”
Maybank Research analyst Thilan Wickramasinghe thinks OCBC Bank could be a “north-south winner”, with shifting supply chains and rising NIM set to drive growth.
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In an Aug 3 note, Wickramasinghe is maintaining “buy” on OCBC with a higher target price of $14.39 from $14.04 previously. “Greater Bay Strategy plus regional Southeast Asian presence puts it in a prime position to capture accelerating North-South supply chains and wealth flows.”
While non-performing loans (NPL) fell to 1.3% from 1.5% this time last year, this was partly a function of recoveries and write-backs from Malaysian and Indonesian customers exiting moratoriums, writes Wickramsinghe.
He adds: “A repeat is unlikely in our view and we expect asset quality to fall going forward from slower macro conditions and higher interest costs. The group’s exposure to China real estate is around 0.8% of loans and management claims these are mostly to network customers. OCBC has added some provision overlays here, but overall are comfortable with provision coverage levels following stress-tests. We have lowered our allowance cost assumptions by 17% for 2022F as a result, but have raised them 37%-41% in FY2023-FY2024 on account of rising uncertainty.”
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PhillipCapital's Glenn Thum is maintaining "buy" on OCBC with an unchange target price of $14.22.
"Our FY2022F estimates remain unchanged. Catalysts include lower provisions and higher interest income as economic conditions improve. OCBC is our preferred pick among the three banks due to attractive valuations, upside in dividend from a 15% CET-1 and lower provisioning as the Indonesian and Malaysian economies recover," writes Thum in an Aug 5 note.
Meanwhile, RHB Group Research analysts are maintaining “buy” on OCBC with a $13.90 target price, pointing to “tempered” FY2022 loan growth target.
They add: “Management remains positive on FY2022 outlook. Still, cognisant that headwinds from the Russia-Ukraine war, supply chain disruptions and recessionary risk have dented investor sentiment, loan growth guidance is tweaked to mid-single digit (from high-to-mid single digit). In our view, this is achievable given year-to-date (YTD) to June growth of 3% or 6% annualised.”
Citi Research analysts Tian Yafei and Tan Yong Hong have a target price of $13.10 on OCBC Bank, pointing to soft market conditions and uncertainties weighing on wealth income for the year. “OCBC will tap on wealth flows with hubs in Singapore, Hong Kong and Dubai to also tap on European and Middle Eastern opportunities. Management indicated that strong momentum in trading income is sustainable with volatile markets. Focus continues to be on leveraging the Asean network to help Chinese companies expand overseas.”
Finally, analysts from fellow local bank DBS Group Research are maintaining “buy” on OCBC with an unchanged target price of $15.
DBS analysts Lim Rui Wen and Tabitha Foo say higher dividends could be on the horizon. “Higher dividends may also be a potential share price catalyst, given that in the absence of M&A activities, the common equity tier-1 (CET-1) ratio of 14.9% is above the optimal operating level. Management has shared that they will not be limited by their target dividend pay-out ratio range of 40%-50% and that their optimal CET-1 ratio is 12.5%-13.5% in the longer term.”
For 1HFY2022, OCBC declared an interim dividend of 28 cents per share, 3 cents higher than the previous interim dividend of 25 cents.
As at 3.09pm, shares in OCBC are trading 19 cents higher, or 1.58% up, at $12.18.