OVERSEA-CHINESE BANKING CORP (SGX:O39)
Oversea-Chinese Banking Corp (OCBC) - End Of Credit Crisis
- OCBC (SGX:O39)'s 1Q21 earnings of S$1.5bn beat our expectation by 27% on lower-than-expected credit costs and higher non-interest income. GPs fell to just S$9mn for a 1bp credit cost, signalling the end of the crisis.
- OCBC's CET-1 rises another 30bps to 15.5% to support pre-COVID dividend of S$0.56 per annum once dividend restrictions are lifted.
- Maintain BUY on OCBC with higher GGM-based target price of S$14.63, up from S$13.65.
The Positives
Robust growth in non-interest income.
- OCBC's 1Q21 non-interest income rose 17% on a q-o-q basis. This was driven by a 28% increase in wealth-management fees as market sentiments improved. Bank of Singapore’s AUM rose 1% q-o-q to US$123bn or S$165bn. Profit from Great Eastern (GE SP, Not Rated) surged 191% q-o-q from marked-to-market gains as market conditions improved. Total weighted new sales and new business embedded value (NBEV) were S$384mn and S$182mn respectively, while NBEV margin of 47.5% was 220bps higher than the last quarter.
Provisions lower than expected.
- Total allowances of S$161mn were made up of S$152mn in SPs and S$9mn in GPs. Its 1bp credit cost signalled sufficient provisions. Some of the SPs that the bank has to recognise in FY21e as a result of asset-quality deterioration can be migrated from S$864mn of GPs already expensed in FY20.
- Loans under moratorium made up 2% of loans, unchanged from the last quarter. Of these, 92% were secured.
Strong capital position raises prospect of dividend hike.
The Negative
Weak loan growth.
- NII was flat q-o-q as loans grew 1% from S$267bn to S$271bn. There was greater lending in Greater China, and to its network customers in the United Kingdom. With improved business confidence and consumer sentiment as the economy recovers, we are expecting mid-single-digit loan growth for OCBC in the next few quarters.
Outlook
Loans growth to accelerate in 2021
- OCBC expect loans growth to accelerate. Improved consumer confidence is expected to prop up business sentiment. It has guided for mid-to high-single-digit loan growth in 2021.
- Geopolitical tensions are also not expected to worsen, which should pave the way for strong business flows in the region. This would benefit loan growth and fee income.
Investment Action
Maintain BUY with higher target price.
- Maintain BUY on OCBC with higher GGM target price of S$14.63, up from S$13.65.
- We raise OCBC's FY21e earnings forecast by 5.6% for higher insurance and wealth-management income and lower allowances. We now assume 1.27x FY21e P/BV in our GGM valuation, up from 1.19x as ROE improves from 9% to 9.5%.
- Catalyst expected from lifting of the dividend cap.
- See
Terence Chua
Phillip Securities Research
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https://www.stocksbnb.com/
2021-05-09
SGX Stock
Analyst Report
14.63
UP
13.650
