OCBC Bank - RHB Invest 2022-11-07: 3Q22 Solid NIM, Better Asset Quality; Stay BUY

OVERSEA-CHINESE BANKING CORP (SGX:O39)

OCBC Bank - 3Q22 Solid NIM, Better Asset Quality; Stay BUY

OCBC (SGX:O39)’s 9M22 earnings were in line with Street expectations. Robust NIM expansion, benign credit cost on improving asset quality and tightly controlled cost growth were key standouts in 3Q22.
Earnings upgrade for refreshed guidance for NIM and credit costs have resulted in valuation falling to attractive levels – 0.9x FY23F P/BV against ROE of 12.6%. Maintain BUY on OCBC, with new S$15.00 target price from S$13.90 target price, 25% upside and ~6% FY23F yield.

OCBC's net profit of S$4.44bn in 9M22 (+14% y-o-y) was at 80% and 76% of our and Street FY22F earnings. Reported ROAE improved to 11.5% (FY21: 9.6%). CET-1 slipped but remained robust at 14.4% (2Q22: 14.9%).
In 3Q22, PIOP rose 16% q-o-q as NII surged 23% q-o-q to offset the 11% q-o-q fall in non-II while opex was up a modest 1% q-o-q. CIR eased to 40.3% vs 43.5% in 2Q22. Bottomline growth was moderated by the 82% q-o-q increase in impairment charges, with loan credit cost at 14bps (2Q22: 8bps).

OCBC added 2% q-o-q to its loan book, bringing year-to-date growth to 4.6% or an annualised 6.1%. Management expects credit demand, which gained momentum in 3Q22, to be sustained in 4Q22.
We believe OCBC would end 2022 with a 6% y-o-y growth in loans, within management’s target of a mid-single digit increase.

NIM expanded by a robust 35bps q-o-q to 2.06% in 3Q22 (2Q22: +26bps q-o-q) – the second consecutive quarter of better-than-peer margin improvement. Management attributed the NIM uplift to improved margins across OCBC’s key markets as the increase in asset yields outpaced the rise in funding costs.
OCBC's management expects to maintain NIM at 2.15% in 4Q22, the exit level in Sep 2022. This would result in an average NIM of 1.9% for FY22F.
We see an upside risk to management guidance as we believe NIM would likely edge higher, although at a more moderate rate as funding costs trend higher.

Non-performing assets (NPA) fell 7% q-o-q on recoveries and upgrade of accounts in Malaysia and Indonesia. This was partly offset by the 18% q-o-q rise in Greater China NPLs on the impairment of a network customer that is fully collateralised.
The healthy asset quality allowed management to revise credit cost guidance to a low to mid-teens, from 20-25bps.

Our FY22F-24F earnings forecast for OCBC are lifted by 9-10% as we pencil in a higher NIM and lower credit cost. These were moderated by assumptions of a lower non-II.
Our target price for OCBC rises to S$15.00, and is based on the GGM-derived intrinsic value of S$14.71 and a 2% ESG premium, based on our in-house ESG methodology.
See

Singapore Research RHB Securities Research | https://www.rhbgroup.com/ 2022-11-07

SGX Stock Analyst Report BUY MAINTAIN BUY 15.00 UP 13.900