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

OVERSEA-CHINESE BANKING CORP (SGX:O39)

OCBC Bank - A Portfolio For Delivery

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.

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%.

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.

The improved outlook has us raising OCBC's 2021-23E earnings per Greater China strategy and wealth platform. As a result, we raise OCBC's target price to S$14.17 from S$12.74.
Maintain BUY.
See
At our target price, OCBC should trade at 1.2x P/B – its long term mean.

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