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

OVERSEA-CHINESE BANKING CORP O39.SI

OCBC Bank (OCBC SP) - OCBC Corporate Day Takeaways

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).

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.

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.

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.

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.

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