OVERSEA-CHINESE BANKING CORP (SGX:O39)
OCBC Bank 4Q21 - Downside Cushioned By Depressed Valuations
- 4Q21 was a disappointing quarter for OCBC due to a shortfall in fee income, higher operating expenses and higher provisions. Asset quality deteriorated in Malaysia, Indonesia and Greater China.
- OCBC's Management guided mid-to-high single-digit loan growth for 2022. Interest rates are on the rise and we expect OCBC to benefit from NIM expansion in 2H22. 2022 P/B is low at 1.1x.
- OCBC provides attractive dividend yield of 4.3% for 2022 and 4.6% for 2023.
OCBC's 4Q21 Results
- OCBC Bank (SGX:O39) reported net profit of S$973m for 4Q21 (down 14% y-o-y and 20% q-o-q), below our forecast of S$1,122m.
- Achieved high single-digit loan growth. Loans growth was 8.4% y-o-y and 1.7% q-o-q driven by Singapore (+5% y-o-y), Greater China (+14% y-o-y) and the rest of the world (+28% y-o-y). NIM was stable at 1.52%. Net interest income increased 3.9% y-o-y.
- Insurance resilient but fee income faltered. Fees grew marginally by 2% y-o-y but pulled back by 7% q-o-q. Contribution from wealth management contracted 1% y-o-y and 17% q-o-q. AUM grew 3% y-o-y to S$258b. Contributions from life and general insurance were S$299m, up 53% y-o-y (4Q20 was a low base due to negative impact from higher insurance liabilities after applying a lower discount rate) but flat q-o-q.
- Cost-to-income ratio elevated at 50.5%. Operating expenses expanded 15% y-o-y in 4Q21. Staff costs increased 10% in 2021 (increase is smaller at 5% if we exclude impact of government job support grants).
- Asset quality under strain. NPL balance increased 2% q-o-q. NPL formation was elevated at S$1,057m (3Q21: S$804m). We saw lower NPLs in Singapore (write-offs for legacy oil & gas exposures) but offset by higher NPLs in Malaysia (housing loans under moratorium), Indonesia (loans for the manufacturing sector) and Greater China (delays in project financing (syndicated loans) due to disruptions from the COVID-19 pandemic). Total provisions at S$317m were 11% higher y-o-y. Loan loss coverage deteriorated 7ppt q-o-q to 90%.
- Rewarding shareholders with more dividends. The board declared final dividend of 28 cents, an increase of 12% h-o-h.
Three-year strategy refresh.
- OCBC plans to tap on 4 growth drivers:
- rising wealth in Asia through hubs in Singapore and Hong Kong,
- ASEAN-China trade and investment flows,
- new economy and high-growth industries and
- transition to a sustainable low-carbon world.
- It will invest to strengthen its comprehensive regional franchise and accelerate digital transformation. Management aims to achieve growth at CAGR of above 10%.
- Guidance for 2022. OCBC's management guided mid-to-high single-digit loan growth for 2022. NIM is expected to be stable at 1.50-1.55%. Credit costs are expected to be 22-25bp (2021: 29bp).
- Sensitivity to rate hikes. Management estimated every 100bp increase in local interest rates will lead to NIM expansion of 18bp.
SMS phishing scam.
- OCBC first detected three cases of SMS phishing scams on 8 Dec 21. The number of cases surged and taken on DBS Group Holdings.
OCBC - Earnings forecast and recommendation
- We expect 4 hikes in 2022 (previous: 3 hikes), 4 hikes in the Gordon Growth Model (ROE: 9.9%, COE: 8.0%, growth: 0.2% (previous: 0.5%)).
- See
Jonathan KOH CFA
UOB Kay Hian Research
|
https://research.uobkayhian.com/
2022-02-24
SGX Stock
Analyst Report
15.82
DOWN
16.120
