OCBC - Maybank Kim Eng Analyst Report 2015-10-29: Risk On

OCBC - Maybank Kim Eng Analyst Report 2015-10-29: Risk On OCBC Bank OVERSEA-CHINESE BANKING CORP O39.SI 

OCBC - Risk on 

  • OCBC’s 3Q15 performance provided few reasons to change our negative view about the stock/sector. 3Q15 total income and core net profit were -5.8% and -13.9% QoQ. 
  • Management concedes that macro outlook is lacklustre. The 3Q provisions exceeded our forecast, and we believe the asset quality deterioration has not run its course. 
  • With the best of the cycle behind us, we maintain SELL rating
  • Our TP of SGD 8.65 is based on 1.1x FY15 P/BV. 

Uninspiring 3Q15 

  • Key banking metrics point towards a subdued performance, such as NIMs (1.66% in 3Q15 vs 1.67% 2Q15), loan growth (+1/+4% QoQ/ YoY), and asset quality (NPLs 0.9% in 3Q vs. 0.7% in 2Q). 
  • Stubbornly weak O&G sector sparked pre-emptive reviews and restructuring of lending book. Accordingly, substandard NPA’s climbed to SGD1,376m (+53/+70% QoQ/YoY). The bright spot was CASA deposits, +6/+13% QoQ/YoY. 9M15 PATMI of SGD2,943m was slightly ahead of our expectations, lifted by Bank of Ningbo and MI. 

No positive surprises 

  • In our 14 Oct report, The NIM Enigma, we established that banks could see modest NIM expansion if rates rise. Since OCBC is less sensitive to repricing intervals, large NIMs surprises in 2015/16 look remote. 
  • Management guided for NIMs to hover near status quo. Management indicated that loan growth was minuscule. Since substandard NPAs are also unlikely to soon be reclassified, we find no convincing catalyst that would prompt a re-rating for the stock/sector. 
  • Against the street’s optimism, we believe OCBC may encounter negative shocks, rather than positive upside triggers. 
  • We tweaked net profit by 2.6/2.6/2.1% for FY15/16/17 after factoring increases in provisions and expenses, offset by total income, minority interest and Bank of Ningbo’s contributions. 
  • Our TP of SGD8.65, close to 1.1x FY15 P/BV. Maintain SELL.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-10-29
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 8.65 Up 8.50