Oversea-Chinese Banking Corporation (OCBC SP) - UOB Kay Hian 2017-06-28: Divesting Of Non-Core Businesses, Investing In Wealth Management

OVERSEA-CHINESE BANKING CORP O39.SI

Oversea-Chinese Banking Corporation (OCBC SP) - Divesting Of Non-Core Businesses, Investing In Wealth Management

OCBC has agreed to divest of its 33.3% stake in Hong Kong Life Insurance for S$426m and has embarked on a strategic review of its stakes in UE and WBL.
Proceeds from these divestments would be re-invested into its core wealth management business and high-growth emerging markets, such as Indonesia and China.

Oversea-Chinese Banking Corporation (OCBC) and subsidiary Great Eastern have jointly announced that they are conducting a strategic review and have received proposals from several parties regarding their combined stakes in United Engineers (UE) and WBL Corporation (WBL). These proposals are being evaluated but there is no certainty that any transaction would materialise.
OCBC and Great Eastern own 26.2m (4.1% stake) and 80.2m (12.6% stake) UE shares respectively.

UE’s core businesses comprise property development, hospitality, engineering and distribution. It owns UE BizHub CITY, UE BizHub EAST and mixed development One-North. It also owns a stable of shopping malls, including Rochester Mall, Seletar Mall and UE Square Shopping Mall.
UE made a general offer for WBL at S$4.50 in 2013 and owns 96.3% of WBL.
Perennial Real Estate and its consortium partners have submitted a bid to acquire UE. Other bidders could include KKR & Co, Haiyi Holdings, Samling Group and Ascendas-SingBridge.

Total proceeds from the divestment of the combined 16.7% stake in UE would be S$292.8m, based on current market price of S$2.75/share. We estimate the positive impact on CET-1 CAR, currently at 12.2%, by up to 12bp assuming Great Eastern distribute its share of proceeds as special dividend.

OCBC has agreed to acquire National Australia Bank’s (NAB) private wealth business in Singapore and Hong Kong at about 1x P/B. The business comprises a US$1.7b mortgage portfolio (half of the properties in Australia, mainly Sydney, Melbourne and Brisbane, and the rest in the UK, Hong Kong, New Zealand and Singapore) and deposits of US$3.1b (in A$, HK$, S$ and US$). It has 11,000 customers across two markets (Singapore: 7,000, Hong Kong: 4,000). This is a small acquisition that will marginally boost OCBC’s total loans by 1.1% and total deposits by 1.5%.
The acquisition is expected to complete by end-17 and would be earnings accretive within the first year after completion.

OCBC has launched onshore private banking in Indonesia through 85%-owned OCBC NISP. OCBC NISP has obtained regulatory approval to set up a private banking unit to manage more than US$1m in Indonesia. The team has five experienced private bankers and is expected to double in size by end-17.
Private banking clients who are business owners could also tap on OCBC NSIP’s commercial banking solutions.

OCBC has a consistent strategy of divesting of non-core assets and re-investing in its core wealth management business and high-growth emerging markets, such as Indonesia and China.
It has agreed to sell its 33.33% stake in Hong Kong Life Insurance to First Origin International for HK$2,366.7m (S$425.9m) cash. Proceeds from the divestment of its stakes in UE and WBL would also be re-invested in its core businesses.

Maintain BUY.
Our target price of S$11.70 is based on 1.30x 2017F P/B, derived from the Gordon Growth Model (ROE: 9.8%, COE: 7.75% (Beta: 1.05x) and Growth: 1.0%).
The stock provides an attractive dividend yield of 3.4%.

Growth from regional markets in Malaysia, Indonesia, Hong Kong and China.
Non-interest income from wealth management, fund management and life insurance will expand in tandem with growing affluence in Asia.

Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-06-28

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 11.700 Same 11.700