OCBC Bank
OVERSEA-CHINESE BANKING CORP
O39.SI
OCBC Bank (OCBC SP) - More pain ahead
1H16 results in line
- 1H16 core PATMI of SGD1,741m (-15% YoY) reflected a slower topline (-2% YoY), contracting loans growth (-2% YoY) and broad-based migration of NPAs to worsening categories.
- Interim DPS was maintained at SGD0.18/sh.
- We cut our FY16-18E net profit by ~4-7% to reflect subdued profit prospects. Our TP is lifted to SGD7.49 after rolling forward to FY17E BVPS on ~0.8x FY17E P/BV.
- The 0.8x book value is maintained (sustainable ROE of 9.3%, COE of 10.5% and growth rate of 3.5%).
- Maintain SELL.
Weaker trends
- NIMs declined 7bps QoQ due to:
- shoring up liquidity post-Brexit (-3bps) and;
- lower SIBOR (-3bps).
- Management guided for low single digit loan growth and stable NIMs of 1.68%.
- Fully-loaded CET1 improved to 12.7% (+30bps QoQ) and the scrip dividend scheme is now removed for interim DPS.
- While management is of the view that the increase in RWAs will be more sanguine, we think upcoming Basel/regulatory rules signal higher risk weights and therefore capital intensity.
Provisions may be inadequate
- Group NPLs rose to 1.1% (1Q16: 1.0%). NPLs have not peaked. 40%/15% of new NPA formation were attributed to the O&G support services sector and SOEs respectively. Total provisions declined 48% QoQ and provision coverage fell to 100% (1Q16: 113%).
- At 12bps of credit costs in 2Q, we expect more provisioning ahead amid the turning credit cycle and estimate 32–36bps of credit costs for FY16-17.
Maintain SELL
- We raise TP to SGD7.49 after rolling forward, based on ~0.8x FY17E P/BV, close to 2SD below historical mean to reflect forward ROEs that would be below 2008-2015 mean. Catalysts include:
- a stable market/economy;
- ability to reprice from higher risk premiums and
- RWA optimisation.
Ng Li Hiang
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2016-07-29
Maybank Kim Eng
SGX Stock
Analyst Report
7.49
Up
7.20
