OCBC Bank - RHB Invest 2022-05-04: Decent Start To FY22; Stay BUY


OCBC Bank - Decent Start To FY22; Stay BUY

  • OCBC (SGX:O39)’s 1Q22 results are within expectations. Management remains cautious on its FY22 guidance, given the recent change in economic conditions.
  • We trim our target price, due to a higher risk premium and after tweaking its ESG score to 3.1 (from 3.2) – as we recalibrated the assessment of risks and regulatory requirements associated with data and cybersecurity. At a current P/BV of 1.1x, OCBC’s risk-reward ratio remains compelling.
  • Stay BUY, new S$13.90 target price for OCBC from S$14.40, 12% upside with 4% FY22F yield.

OCBC's 1Q22 in line.

  • OCBC's 1Q22 net profit of S$1,356m (+39% q-o-q, -10% y-o-y) was at 24%/25% of our/Street FY22F earnings. Reported ROAE improved to 10.6% (FY21: 9.6%) while CET-1 was relatively stable at 15.2%. 1Q22 PIOP fell 19% y-o-y as non-II declined 23% on lower wealth management fees (-20%), trading income (-29%) and life insurance profit (-34%), and negative JAWs as opex grew 5%. NII rose 4% y-o-y on 8% y-o-y loan growth and stable NIM.
  • The 63% y-o-y drop in provisions, with loan credit cost at a low 6bps (1Q21: 22bps), moderated the fall in net profit.

FY22 loan growth target unchanged.

  • While acknowledging near-term headwinds from the Russia-Ukraine war, the China lockdown and rapid rise in inflation, OCBC's management believes Asia will remain resilient – helped by the reopening of economies.
  • Loans grew 1.4% year-to-date or an annualised 5.6% in 1Q22, ie at the lower end of its FY22 target of mid-to-high single-digit growth. Loan growth is expected to gain momentum in 2H, as was the case in FY21.

Slight uptick in NIM guidance.

  • OCBC's management expects NIM at 1.55-1.60% in FY22, a slight upgrade from its earlier guidance of 1.50-1.55% (FY21: 1.54%). Management is conservative on its guidance, as it sees some uncertainty in the transmission of US interest rate hikes to Singapore’s benchmark rates. Hence, NIM could surprise on the upside.
  • OCBC estimates that a 100bps hike in the US rates would add S$670m to NII and 14bps to NIM.

Fee income.

  • OCBC did not provide specific guidance on non-II growth. Management plans to increase the hedging of its investment portfolio (~70% in 1Q22) to mitigate the impact of non-customer treasury flows. With investors cautious over risks of recession, it sees challenges to the expectations for double-digit growth in wealth management fees. The wealth management unit contributes ~50% of net fee income.

Staying cautious on asset quality.

  • OCBC’s loan book remained resilient in 1Q22 with no material weakening. Non-performing assets (NPA) dipped 0.7% q-o-q, nudging NPL ratio to 1.4% from 1.5% in Dec 2021, while NPA coverage was at a comfortable 91%.
  • Still, OCBC's management is sticking with its credit cost guidance of 20-25bps for FY22F (FY21: 29bps), preferring to be cautious.

Earnings forecast and target price for OCBC

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2022-05-04
SGX Stock Analyst Report BUY MAINTAIN BUY 13.90 DOWN 14.40