OCBC Bank - Maybank Kim Eng 2021-05-07: A Portfolio For Delivery

OVERSEA-CHINESE BANKING CORP (SGX:O39) | SGinvestors.io OVERSEA-CHINESE BANKING CORP (SGX:O39)

OCBC Bank - A Portfolio For Delivery


Wealth, North Asia, Singapore all set to deliver

  • OCBC (SGX:O39)’s strong, expectations beating 1Q21 performance was supported by mark-to-market and trading gains. These may be volatile going forward, but more stable sources such as wealth and transactional fees are also rising.
  • An improved loan growth outlook with a stabilized NIMs environment should support further operational growth, especially given its gearing to North Asia and Singapore. OCBC's strong capital and allowances together with a better than expected asset quality backdrop could drive reserve write backs in 2H21, we believe.
  • We raise our target price of OCBC to S$14.17. BUY.



Strong underlying operational growth prospects

  • OCBC's non-interest income was up 70% y-o-y albeit from strong gearing to SG and North Asia (which contributes 65-75% of PPOP) should be an advantage as recovery takes hold.
  • NIMs seem to have stabilized and rising loan growth should keep them supported, in our view.
  • OCBC's management claims that demand for loans from large Singapore corporates and North Asia is strengthening. We have raised 2021-2023E PPOP by 3-7%.


Further downside to credit costs

  • Credit costs fell to 22bps from the 97bps peak in 2Q20. NPLs are flat at 1.5%. Management claims that in light of resurging COVID and see significant opportunities for upgrades here.
  • Nevertheless, reserve write-backs, especially the significant management overlays established in 2020, are unlikely to be considered before 2H21 when there is better clarity of regional herd immunity, we believe. We lower 2021-23E credit costs by 1-7bps.


Raise OCBC's target price to S$14.17. Maintain BUY






Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-05-07
SGX Stock Analyst Report BUY MAINTAIN BUY 14.17 UP 12.740



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