OCBC - CGS-CIMB Research 2021-05-07: An Assured Quarter

OVERSEA-CHINESE BANKING CORP (SGX:O39)

OCBC - An Assured Quarter

OCBC's 1Q21 profit of S$1.5bn (+33% q-o-q, +115% y-o-y) beat our S$1.24bn and was 34% above consensus, thanks to life assurance profit (S$422m).
OCBC's non-II of S$2.9bn was up 40% q-o-q due to the above, steady wealth management (+13% q-o-q) and strong trading income (+20% q-o-q).
Lower credit cost of S$161m was in line (no provision write-back). ROE climbed to 12.4% (4Q20: 9.3%). We see positive share price movement.

OCBC (SGX:O39)’s 1Q21 net profit of S$1.5bn (+33% q-o-q/+115% y-o-y) beat our/consensus estimates by 21%/34%. The beat was mainly due to robust insurance income (+140% q-o-q/+199% y-o-y), largely the result of MTM gains from Great Eastern Holdings (SGX:G07), and strong treasury income (+29% q-o-q/+185%). Fee income was in line our expectations.
OCBC's 1Q21 net profit formed 33% of our and consensus forecasts.

OCBC's NIM was stable at 1.56% q-o-q. NII edged upwards slightly as loan growth rebounded to +1.4% q-o-q (4Q20: -0.7%).
Fee income was strong (+13% q-o-q/+7% y-o-y) on the back of solid wealth management fees of S$321m (+28% q-o-q/+10% y-o-y). Other fee income drivers held steady q-o-q. Trading income was robust at S$316m (+20% q-o-q/yoy n.m.), driven by higher customer flow income.
On balance, PPOP rose 30% q-o-q and 28% y-o-y. Opex growth was contained (+2% q-o-q/+4% y-o-y); CTI improved to 39.4% in 1Q21 (FY20: 43.8%) on the back of stronger revenue growth.

OCBC set aside impairment provisions of S$161m in 1Q21 (24bp of (calculated) credit costs). These comprised 23bp SPs and 1bp GPs.
Loans under moratorium reduced to S$5.1bn in Mar 21 (from S$5.7bn in Jan 21), still accounting for 2% of total loans.
Although net NPA formation was higher q-o-q, this was offset by larger recoveries in the bank’s corporate/commercial segment. NPL ratio was stable q-o-q at 1.5%.

A re-rating catalyst for OCBC's Share Price is the removal of the dividend cap by the Monetary Authority of Singapore while a downside risk is larger-than-expected asset quality deterioration from moratorium loans.
See

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-07

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