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OCBC - CIMB Research 2015-12-09: Resilience and diversity amid adversity

OCBC - CIMB Research 2015-12-09: Resilience and diversity amid adversity OCBC OVERSEA-CHINESE BANKING CORP O39.SI 

OCBC - Resilience and diversity amid adversity 

  • Maintained best-in-class credit quality even through the GFC; we expect the trend to continue amid a deterioration in credit cycle. 
  • Most balanced exposure to ASEAN and China, placing it in a good position to benefit from both the AEC and the One Belt, One Road policy. 
  • Maintain Add, with a GGM-based target price of S$10.88 (1.22x CY16 P/BV). 
  • Remains our sector top pick. 

■ NPLs starting to surface, but not alarming 

  • As the credit cycle begins to deteriorate, we are most comfortable with OCBC, given its track record of having the best-in-class credit quality even through downturns and its proactive policies in recognising NPLs. We continue to worry about NPLs in 1) oil & gas, 2) ASEAN, and 3) Singapore property. But in terms of exposure to these sectors, OCBC is on middle ground, with neither the least nor biggest exposure. We forecast 38bp of loan loss provision charges for OCBC in FY16 (lower than DBS: 40bp, UOB: 65bp). 

■ Longer-term beneficiary of China’s One Belt, One Road policy

  •  OCBC has built a stronger foothold in Greater China with the acquisition of Wing Hang Bank (WHB). Its strategy of financing cross-border investments between Greater China and ASEAN places it in a prime position to benefit from China’s One Belt, One Road (OBOR) policy as Chinese corporates look to finance infrastructure projects in ASEAN. 
  • WHB has also become a funding base for US$ and renminbi, in preparation for greater onshore-offshore loan demand in China. 

■ A recognised wealth management franchise 

  • OCBC has built a strong reputation in the wealth management (WM) space with its acquisition of Bank of Singapore. 
  • Besides focusing on high net worth individuals, OCBC’s strategy is also to target the mass affluent segment, both in Singapore and by cross-selling to WHB’s SME customer base. 
  • In the longer term, we think its ability to link Greater China and ASEAN will bode well for its WM franchise as demand for WM services grows with the relaxation of capital controls by the Chinese government. 

■ Best balance of ASEAN and China exposure 

  • Among the Singapore banks, DBS has the biggest exposure to Greater China (DBS: 35% of loans, OCBC: 28%, UOB: 12%), while UOB has the largest exposure to ASEAN ex-Singapore (DBS: 9%, OCBC: 21%, UOB: 22%). 
  • OCBC, being in the centre, has the best balance of ASEAN and China exposure. We think this will allow it to reap benefits from both the ASEAN Economic Community (AEC) as cross-border trade, capital, and investment flow more freely within ASEAN, as well as from OBOR. 

■ Maintain Add 

  • We maintain our Add rating on OCBC, with a GGM-based target price of S$10.88 (1.22x CY16 P/BV). 
  • OCBC remains our top pick in the sector for its resilient credit quality and best mix of exposure to ASEAN and China which allows it to benefit from both the AEC and OBOR.



Kenneth NG CFA CIMB Securities | Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 10.88 Same 10.88


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