OCBC Bank - Maybank Kim Eng 2017-05-15: OCBC Corporate Day Takeaways

OCBC Bank (OCBC SP) - Maybank Kim Eng 2017-05-15: OCBC Corporate Day Takeaways OVERSEA-CHINESE BANKING CORP O39.SI

OCBC Bank (OCBC SP) - OCBC Corporate Day Takeaways


Emphasis on providing solutions and digitalization 

  • OCBC held a corporate day to present the initiatives for its consumer/wealth management platforms. We are positive on its wealth platform, customer-centric approach and digitalization efforts. As at 1Q17, operating profits for its global consumer/private banking segment formed 29% of total operating profits and rose 49% QoQ/43% YoY.
  • Maintain HOLD with TP SGD9.85, based on ~1.1x FY17E P/BV, close to 1SD below historical mean (link: 1Q17 results).


Transformation started to show results 

  • OCBC’s change in its approach from product-centric to customer-centric (i.e. providing solutions/goal-based advisory) started in 2015. Since then, the bank has inculcated this value into its employees and has started to see results. 
  • Currently, 36% of sales come from OCBC Life Goals, which is a customized programme to help customers reach their financial goals for retirement, children’s education, and wealth transfer. As compared to 18 months ago, 20% of sales came from the goal-based advisory process. 
  • As OCBC continues to expand its products through omni-channel efforts, it expects 50% of sales to come from this process in the next 12- 18 months, and 67% (i.e. 2 out of every 3 customers) in the long term.


Wealth platform well-positioned 

  • We believe OCBC’s wealth platform is well-positioned for cross-selling efforts and product tie-ups across its franchise. For example, some Bank of Singapore’s (OCBC’s private banking arm) products could also flow to the bank’s premier and consumer banking segments.


Digital investments to rise 

  • To engage customers more efficiently, OCBC has invested in technology, such as voice biometrics and artificial intelligence. 
  • IT investments are essential to build the franchise, retain customers and/or lure new customers across all touch-points in the competitive consumer banking/wealth management space. While this makes IT costs sticky, such investments can result in productivity gains and cost efficiencies.
  • We currently estimate costs to increase by 3-4% from FY17-19E.


Swing Factors


Upside

  • Widening credit spreads from repricing of assets at higher interest rates.
  • Higher non-interest income from wealth management and higher contributions from Great Eastern.
  • Sharp and sustained rebound in commodity prices.
  • Better-than-expected asset quality through proactive restructuring of loans, with no major credit slippages.
  • Better demand for Singapore mortgages from easing of property-cooling measures.

Downside

  • Oil prices stay low, sparking more NPLs in O&G support services.
  • Job losses in Singapore become pervasive, hurting its mortgage portfolio.
  • Sharp decline in value of trading securities and shocks in fixed-income portfolio.
  • Lack of liquidity of a funding currency.
  • Translation losses from MYR/IDR depreciation.
  • Emergence of dominant financial competitors in Singapore.
  • Capital-raising by peers may depress sentiment.




Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-05-15
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 9.850 Same 9.850



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