OCBC Bank - Maybank Kim Eng 2016-04-07: Further expansion

OCBC Bank OVERSEA-CHINESE BANKING CORP O39.SI

OCBC Bank (OCBC SP) - Further expansion

WM units OCBC announced that its private banking arm, Bank of Singapore, will acquire Barclays’ Wealth and Investment Management business in Singapore and Hong Kong for an indicative purchase price of USD320m (~SGD434m). Transaction will be funded by cash.
With an AUM of USD18.3b (~SGD24.7b) as of Dec 2015, this translates to price/AUM of 1.75%, in line with what DBS paid for Societe Generale’s Asian Private Bank business in 2014. Total AUM will increase by 33.3% from USD55b to USD73.3b. This will move it up into one of the top 10 Asia private wealth banks - slightly behind DBS (AUM: USD75b).

OCBC expects the acquisition to be accretive to EPS and ROE after the first year.
The transaction is expected to be completed towards end-2016.

We have previously estimated that if one of the Singapore banks succeeds in bidding for this acquisition (based on price/AUM of 1.5%), there will be a 1-1.4% accretion in profits and fully-loaded CET1 ratio will reduce by 33-45bps (link). Based on price/AUM of 1.75%, the acquisition will contribute ~1.1% to OCBC’s 2017 net profits.
Fully-loaded CET1 ratio will reduce by ~44bps from 11.8% to 11.4%.
Management has previously indicated that 11.4% is the level that they are comfortable at.

While this provides an opportunity for OCBC to broaden and complement its WM franchise especially in Singapore and Greater China, we do not change our view on the back of this acquisition.
We continue to believe that topline growth will slow and NPLs could arise from the O&G support services segment.
Maintain SELL and TP of SGD7.20, based on 0.8x FY16 P/BV.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-07

Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 7.20 Same 7.20