Oversea-Chinese Banking Corp - RHB Invest 2017-05-10: Strength From Wealth Management

Oversea-Chinese Banking Corp - RHB Invest 2017-05-10: Strength From Wealth Management OVERSEA-CHINESE BANKING CORP O39.SI

Oversea-Chinese Banking Corp - Strength From Wealth Management

  • OCBC’s results were slightly higher than expectations. 
  • Whilst there was good growth from NII, it declined YoY as NIM was 13bps narrower during the same period. 
  • We project 2017 NIM of 1.66%, in line with management’s guidance. NPL ratio remained at 1.3%, unchanged from 4Q16, but we project a mild rise to 1.5% by year-end. 
  • We raised our 2017 net profit forecast by 6% to factor in a stronger NII and lower provisions. Our TP is raised to SGD10.22 (from SGD8.90, 3% downside).



NIM to expand in subsequent quarters. 

  • Management guided for a 2017F NIM of approximately 1.66%, wider than 1Q17’s 1.62%, which was 1bp narrower QoQ. The expected US Fed Fund rate hike(s) should lead to a firmer Singapore Interbank Offered Rate (SIBOR) and OCBC’s low loan deposit ratio should help widen the NIM. 
  • We forecast a 2017 NIM of 1.66%.


OCBC guided for a mid-single digit 2017F loan growth. 

  • Further contributing to the NII growth would be OCBC’s expectation of a 2017F mid-single-digit loan growth. The loan amount in 1Q17 expanded by 2.1% QoQ, and was up 4% in constant currency terms, with the amount from “Financial institutions, investment and holding companies” surging by 9% QoQ.


Overall wealth management income grew by 50% YoY

  • Overall wealth management income grew by 50% YoY to SGD724m, and accounted for 32% of total income, up from 1Q16’s 23%. 
  • OCBC’s private banking business saw AUM rising by 49% YoY to USD85bn, with partial contributions from Barclays Wealth & Investment Management business; this contributed to the overall improvement.


Expect NPL ratio to rise marginally over future quarters. 

  • 1Q17 specific credit cost of 20bps was half that of 4Q16’s 44bps. The NPL ratio of 1.3% remained unchanged QoQ; this trend of stabilisation is consistent across the three banks. 
  • Management sees a stabilisation happening for the oil & gas loan portfolio but also sees the oil majors beginning to turn aggressive, hence, a risk of rising NPL. We forecast an NPL ratio of 1.5% for the end of 2017.


Results slightly above expectations. 

  • 1Q17 net profit of SGD973m was 14% higher YoY and 23% higher QoQ; it represented 27-28% of our and consensus’ pre-results 2017 net profit forecasts. The growth was due to an increased strength in the wealth management and insurance operations. 
  • We raise 2017 net profit forecast by 6%. Whilst this is a positive, OCBC’s lower-than-peers’ loan loss coverage of 101%, points to a risk of higher provisions, should oil prices fall.
  • After fine-tuning our assumptions, we tweak our GGM-derived TP to SGD10.22, which factors in a 9.5% CoE and a higher 10.1% ROE (vs our previous assumption of 9.5%), which implies a 1.08x 2017F P/BV.


Risks. 

  • The downside risks to our forecast include higher-than-expected impairment charges and weaker-than-expected NIMs. The converse represents the upside risks.




Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-10
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 10.22 Up 8.900



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