Strong fees, but rising NPLs
- OCBC’s S$1,048m 2Q15 net profit beat our estimate by 6% and was 8% above consensus, due mainly to a S$105m net gain on the sale of GEH’s stake in New China Life.
- Excluding the gain, 1H15 core net profit would have been broadly in line at 48%/50% of our/consensus full-year forecast.
- OCBC’s fee engine remains robust, with strong growth in brokerage and investment banking fees while wealth management remains the key driver.
- NIMs did not disappoint, rising 5bp qoq on the back of improved customer loan yields.
- While the NPL ratio was relatively stable at 0.7%, there was a pick-up in oil & gas-related NPLs in Indonesia and Malaysia.
- We shave our estimates and lower our GGM-based target price to S$11.65 (prev S$11.85). OCBC remains an Add, potentially catalysed by the realisation of synergies with Wing Hang Bank.
NIMs recovered; loan growth 2% in constant currency
- NIM rose 5bp qoq to 1.67% as OCBC benefited from better customer loan spreads with the hike in SIBOR.
- However, NIM contracted 3bp yoy given higher funding costs and lower interbank yields as gapping opportunities in the onshore-offshore Rmb market faded.
- Loans came in flat qoq but were up 2% in constant currency terms. Greater China and Indonesia were the only two markets that saw qoq loan growth.
- Singapore loan demand remained lacklustre.
- OCBC continued to guide for mid-single-digit loan growth in 2015.
Robust fee engine; gains from GEH countered trading fall
- OCBC’s fee income growth was impressive (+11% qoq), with growth seen across all segments.
- Brokerage fees (+45% qoq) and investment banking (+58% qoq) did especially well.
- But the key driver remains wealth management, which now contributes 31% of the group’s income.
- Bank of Singapore’s AUM has been steadily rising to US$54bn, partly contributed by cross-selling wealth management services to OCBC Wing Hang’s SME client base.
- During the quarter, OCBC recognised a S$105m net gain as GEH pared down its equity stake in New China Life from 10% to 1.8%; this helped buffer the fall in trading income (-43% qoq) and lower profit contributions from GEH (-27% qoq).
- NPL ratio stable but oil & gas portfolio to see stress NPL ratio rose marginally to 0.7% (1Q: 0.6%), as a result of an uptick in Malaysia (2Q: 1.9%, 1Q: 1.6%) and Indonesia (2Q: 1.7%, 1Q: 0.7%).
- These related to two oil & gas loans that were booked in Singapore and amounted to c.S$150m.
- Guidance is for SPs to rise from the current 9bp, with further stress in the oil & gas portfolio a likely scenario as oil prices remain low.
(Kenneth NG, CFA; Jessalynn CHEN)
Source: http://research.itradecimb.com/
