OCBC Bank - UOB Kay Hian 2021-01-11: New CEO, But Unchanged Focus To Expand In Greater Bay Area

OVERSEA-CHINESE BANKING CORP (SGX:O39)

OCBC Bank - New CEO, But Unchanged Focus To Expand In Greater Bay Area

Ms Helen Wong is a competent leader with a strong track record, having led HSBC’s Greater China operations, which is the largest profit centre of HSBC. We expect her to focus on expansion in the Greater Bay Area, Sustainable Finance and cross-selling.
We look forward to OCBC (SGX:O39) improving its dividend policy, and with more intensified focus on technology and digitalisation. Maintain BUY.

OCBC announced that Mr Samuel Tsien will retire on 14 Apr 21. Ms Wong will take over as Group CEO with effect from 15 Apr 21.

Ms Helen Wong joined global bank HSBC in Hong Kong in 1992. Her career of 17 years at HSBC spans across investment banking, including debt capital markets, and corporate banking. She managed relationships with Hong Kong and China corporations as Head of Global Banking. In 2009, she relocated to Shanghai to be the deputy CEO of HSBC China. She was promoted to CEO of HSBC China, and then Deputy Chairman in 2013.

Ms Helen Wong was Chief Executive of HSBC Greater China from 2015 to 2019, overseeing HSBC’s businesses in Mainland China, Hong Kong, Macau and Taiwan. HSBC’s earnings are derived mainly from Asia, and Greater China is the biggest growth driver. Hong Kong and Mainland China accounted for 40% of total revenue. Loans denominated in Hong Kong dollars and renminbi accounted for 26% of total loans. Greater China’s 47,000 staff accounted for 20% of HSBC’s global headcount.

Ms Helen Wong is no stranger to OCBC. She started her career at OCBC as a management trainee in 1984 and became OCBC’s first China Desk Manager based in Hong Kong in 1985. Her previous stint at OCBC lasted eight years. She re-joined OCBC as Deputy President and Head of Global Wholesale Bank in Jan 20 (Mr Tsien’s previous position prior to appointment as CEO in Apr 12). She is also in charge of two product groups - investment banking and transaction banking (cash management and trade finance). Ms Wong co-leads OCBC’s Transform for Future task force to review and refine OCBC’s group strategy and operating model.

According to OCBC Chairman Mr Ooi Sang Kuang, “Helen’s experience and expertise extend beyond corporate banking, Greater China and North Asia”.

Ms Helen Wong is known for her bold and decisive moves. At HSBC, Ms Wong championed the expansion into Pearl River Delta (Greater Bay Area). She played a pivotal role in HSBC’s drive to be a leader in renminbi internationalisation. She helped many customers in Mainland China expand their businesses in Southeast Asia to overcome the headwinds created by the US-China trade conflict. She is a promoter of Sustainable Finance and cross-selling.

The renewal in leadership could bring about positive transformation:
1. We look forward to a review of OCBC’s dividend policy, which is perceived as overly conservative. Banks nowadays are regarded as yield plays and OCBC’s dividend policy ought to be adjusted to meet the needs of the majority of shareholders.
2. The new leadership would sharpen OCBC’s focus on technology, which would endear OCBC to young professionals and the millennials.

We maintain our earnings forecasts. Our target price is based on 1.14x 2021F P/B, which is derived from the Gordon Growth Model (ROE: 8.8%, COE: 7.75% and Growth: 0.5%).
See OCBC Share Price; OCBC Target Price; OCBC Analyst Reports; OCBC Dividend History; OCBC Announcements; OCBC Latest News.
OCBC's share price catalysts include:
- Expansion in China’s Greater Bay Area.
- Non-interest income from wealth management, fund management and life insurance will expand in tandem with growing affluence in Asia.
- OCBC Wing Hang is expected to complete the implementation of internal ratings based approach (IRBA) to compute risk-weighted assets (RWA) by 4Q20 or 1H21. The exercise is to reduce RWA by S$7b.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-01-11

SGX Stock Analyst Report BUY MAINTAIN BUY 12.85 SAME 12.85