OCBC - CIMB Securities 2015-09-10: A look inside a progressive bank.

OVERSEA-CHINESE BANKING CORP O39.SI

A look inside a progressive bank

OCBC showcased results of its efforts in wealth management (WM), digital banking and mobile banking, as a result of investments over the past five years.
The mobile platform impressed us as much as the clear strategic thinking that drove a shift from a product-centric bank model to a customer-centric one.
The name OCBC is synonymous with WM. We expect it to continue to deliver.
Besides serving the higher-end of the wealth spectrum, we see signs of a very coherent and credible WM strategy for the mass market too.
We maintain our Add rating and target price $10.20(1.22x CY16 P/BV). Catalysts include differentiators in future wealth fees and ability to cap credit costs in a downturn.

OCBC hosted a corporate day to showcase its efforts over the last five years in building its wealth platform (revolving around a goal-based advisory model) and its digital banking efforts. This journey started in 2010, led by the acquisition of BoS.

The strategy in consumer banking initially started with the aim of building a wealth halo, i.e. if anyone thinks about wealth management, OCBC wanted to be the first name that comes to mind. To execute the strategy, OCBC moved away from a typical bank’s product-centric model (where credit cards, loans, wealth are run as individual product lines) to a customer-centric model (where all efforts are geared to find out what the customer require, then addressing those needs). Compared to other banks, we see that OCBC is more fanatical about customer segmentation.

A customer-centricity focus saw OCBC move towards customer segmentation, cutting the consumer pie down to: 1) premier private client, 2) premier, 3) youth, 4) family, 5) emerging affluent.
Within the bank, each product line (wealth, cards, mortgages) evolved from taking ads on their own products, to more thought on customer segment, managers "owning" each client segment and working with product teams to come out with the product suitable for the segment. The natural effect is more cross-sell. The challenges of this model are regulatory and implementing realistic cross-sell KPIs.

We are impressed. We see signs of a forward-thinking bank, making the effort to differentiate themselves in a competitive wealth management market. We see results of OCBC quiet investment in digital banking capabilities. Some mobile initiatives (full account access) will curb the growth of call-centre expenses, others (open-access money transfer) invariably mean more short-term costs but will delight customers and improve customer stickiness, yet others (personal investment platform) are potential revenue generators.
Together, the digital efforts are not inferior to peers and will position OCBC in the new world of banking.

We retain our Add rating on OCBC. The latest insights giving us comfort on its long-term strategic positioning and its ability to generate WM fees.
Near-term challenges are similar to peers and include dealing with rising credit costs as ASEAN slows.

Kenneth NG CFA | Jessalynn CHEN CFA | http://research.itradecimb.com/ CIMB Securities 2015-09-10

ADD Maintain ADD 10.20 Same 10.20