OVERSEA-CHINESE BANKING CORP (SGX:O39)
OCBC Bank - Stable Outlook
- OCBC (SGX:O39)’s 3Q22 earnings beat Street/MIBG expectations from fast rising margin momentum. Further upside here is likely as central banks continue to raise rates, which should be reflected in rising loan yields.
- Higher funding costs down the road could slow the pace of NIM growth. Nevertheless, OCBC should continue to offer good earnings visibility amidst volatile macro conditions.
- Asset quality remains a key risk as regional growth slows, but OCBC has strong provisioning levels as well as capital. This could potentially drive upside to dividends going forward.
- We raise our target price for OCBC to S$14.70 from S$14.39. Maintain BUY.
Margins set to rise further. But also funding costs
- OCBC’s 3Q22 NIMs saw the fastest growth amongst peers rising +54bps y-o-y. 90% of its loans are on floating rates. This has enabled OCBC to re-price rate hikes effectively. However, CASA deposits have fallen to 56% vs 62% a year ago and management expects funding costs to pick up pace going in to 2023E.
- We believe NIM growth will start to taper in 2H23. We forecast 2022E NIM to expand +42bps y-o-y, followed by +9bps y-o-y in 2023E. Concurrently, we lower our 2023-24E loan growth forecasts by 2-4ppts due to uncertainty in macro conditions, particularly in North Asia.
- Nevertheless, improvements in NIMs (margins are responsible for 70% of 9M22 NII growth), should offset this slowdown, in our view.
Asset quality key concern for 2023E
- NPLs fell to 1.2% (vs. 1.5% 3Q21). Relief loans are now just 0.2% of loan book. However, Greater China NPLs increased 3x y-o-y. Management claims this is primarily from a Singapore based customer that has invested in Mainland property, and it has been classified for company-specific reasons.
- OCBC is not seeing sectoral stress so far. Nevertheless, as interest rates continue to rise, we expect sectoral stress risks to increase as clients see increasing debt servicing burdens.
- We have raised 2023-24E NPL ratios by 6-27bps as well as provisioning costs by 2-15% as a result.
Stability amidst uncertainty. Maintain BUY
- We believe OCBC provides good earnings visibility and stability amid a backdrop of market uncertainty. An improved margin outlook has us upgrading 2022-24E EPS by 4-5%.
- OCBC’s strong CET1 levels as well as provisioning cover could drive higher sustainable dividend upgrades going forward. Our multi-stage DDM-based target price for OCBC (COE 8.4%, 3% terminal) is raised to S$14.70 (from S$14.39).
- With 22% upside, maintain BUY recommendation on OCBC.
- See
Thilan Wickramasinghe
Maybank Research
|
https://www.maybank-ke.com.sg/
2022-11-05
SGX Stock
Analyst Report
14.70
UP
14.390
