OCBC - CIMB Research 2018-02-14: 4Q17 In-line Results, Non-NII To Continue To Shine

OCBC - CIMB Research 2018-02-14: 4Q17 In-line Results, Non-NII To Continue To Shine OVERSEA-CHINESE BANKING CORP O39.SI

OCBC - 4Q17 In-line Results, Non-NII To Continue To Shine

  • OCBC Bank's FY17 net profit of S$4,146m (+19% y-o-y) was in line with consensus and our expectations at 103% of our FY17F. 4Q17 net profit of S$1,033m was at 26%.
  • Similar to peers, OCBC took advantage of the upcoming FRS 109 and cleaned up its O&G loan book. We expect O&G exposures to be contained with this move.
  • Fully-loaded CET1 CAR rose to 13.1%. A final DPS of 19 Scts was declared, bringing full-year DPS to 37 Scts (+3% y-o-y).
  • While management is comfortable with CAR of 12.5%, it sees growth opportunities to re-deploy internal generated funds.
  • Reiterate ADD with a higher Target Price. We expect OCBC’s non-NII franchise to continue to shine.



4Q17 results highlights: O&G clean up + slightly higher dividends 

  • OCBC recorded a 4Q17 net profit of S$1,033m (+31% y-o-y), lifted by higher NII, strong non-NII showing and lower credit costs (due to release of excess GP). 
  • Similar to peers, the bank took advantage of the upcoming FRS 109 to clean up its O&G loan book. Also, fully loaded CET1 CAR rose to 13.1% (3Q17: 12%). 
  • A final DPS of 19 Scts was declared, bringing full-year DPS to 37 Scts (+3% y-o-y; 38% payout). 
  • The group achieved a ROE of 10.9% for the quarter and 11.2% for FY17 (FY16: 10%).


NII up on higher loans and NIM 

  • 4Q17 NII grew 14% y-o-y, driven by higher loans (+8% y-o-y/+2% q-o-q to S$237bn) and NIM (+1bp q-o-q/+4bp y-o-y to 1.67%). NIM averaged 1.65% for FY17 vs. 1.67% for FY16 (due mainly to lower loan yield offset by higher gapping income from money market). 
  • We project NIM to average 1.7% for FY18F. Excluding S$2.1bn loans from NAB (National Australia Bank) consolidation, 4Q17 underlying loan growth would have ticked up 1% qoq. 
  • Management re-affirmed a high single-digit loan growth guidance for FY18F; we input 7.4%.


Non-NII franchise continues to shine; costs well-managed 

  • Non-NII grew 23% y-o-y, led by higher fee and insurance income (+64%). Fee rose 19% yoy, led by higher WM (+38%). FY17 WM income expanded 43% y-o-y; BOS’ (Bank of Singapore) AUM rose 25% y-o-y to US$99bn. 
  • Great Eastern Holdings’s 4Q17 TWNS was up 36% (FY17: +23%); NBEV up 35% (FY17:+17%); non-operating profit jumped almost 6x, given favourable market conditions. 
  • Costs were well-managed, with 4Q17 CIR improving to 40.6% (4Q16: 45.1%). FY17 CIR was 41.9% vs. 44.6% for FY16 (despite consolidation of Barclays WM). We project 42% CIR for FY18F.


Further downgrade of OSV book 

  • The group recognised S$1.06bn SP (178 bp of ave. loans) as it downgraded its OSV exposures (from S$5.7bn in 3Q17 to S$4.8bn in 4Q17). This was partially offset by S$0.9bn release of excess GP (total credit costs at 28bp of ave. loans). 
  • New NPAs jumped to S$1.4bn; NPL ratio increased to 1.5% (3Q17: 1.3%); NPL coverage reduced to 77% (3Q17: 101%). 
  • We forecast FY18F credit costs at 20bp, in line with SPs which were taken in prior to the current O&G downturn.


Retained earnings used for growth opportunities 

  • On the balance sheet, customer deposits increased 8% y-o-y/6% q-o-q with LDR at 82.5% (FY16: 82.9%). Management sees desired LDR in the high 80s, which would help NIM.
  • Fully loaded CET1 CAR improved to 13.1% from 12% in 3Q17 (half the improvement was attributed to BOS adopting an IRB (Internal Ratings-Based) approach; half from capital optimisation at Great Eastern Holdings as well as fine-tuning of market risk). 
  • While management is comfortable with CAR at 12.5%, it sees growth opportunities to redeploy internal generated funds.


ADD maintained with higher GGM-based Target Price 

  • While markets could be sceptical of another year of strong non-NII showing (due to high-base effect), we believe that non-NII would continue to shine, thanks to secular trends underpinning WM, while Great Eastern Holdings would also offer a more holistic WM platform. 
  • We raise our FY18-19F EPS by 3.3-6.1% on higher non-NII and lower credit costs. Reiterate ADD with a higher GGM-based Target Price of S$14 (implied 1.4x FY18F P/BV vs. FY19F ROE of 11.6%; 11.7x FY19F P/E – in line with mean).





YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-02-14
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 14.00 Up 12.600



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