May 11, 2017

OCBC’s 1Q17 core PATMI of SGD973m (+23% QoQ, +14% YoY) beat expectations, meeting 27% of our previous FY17forecast, reflecting positive signs as we see potential upside to earnings and growth prospects ahead.

We raise FY17-19E core net profit by 7-16% mainly on:

  1. higher loan growth assumption of c.6% (from 2-3%);
  2. higher non-interest income (non-II) by 7-10%mainly from higher wealth management (WM) fees and GE contributions; and
  3. lower provisions by 4-5%.

We raise loan growth estimates to 6% as we think more lending opportunities could arise for further growth.

1Q17 NIM fell 1bp QoQto 1.62% due to 2bps adjustment on higher non-recognition of interest income on NPLs. Excluded, NIM would improve by 1bp QoQ, still lower than peers’ +3-4bps. Margin compression will likely continue as the bank faces competitive pressures and chases after high quality credit. We expect FY17 NIM to expand slightly to 1.68% on the back of higher rates.

Bank of Singapore’s (OCBC’s private banking arm) AUM rose decently by USD6b QoQ to USD85b. While WM fees rose 37% QoQ partly due to positive market sentiment, we think organic growth from its BOS franchise and tie-ups of product launches with its other subsidiaries, such as Lion Global Investors, makes it well-positioned in the space. WM revenue is now increasingly important for Singapore banks to bolster earnings as they play catch-up and gain market shares from the smaller players.

Upgrade OCBC to HOLD, TP raised 22% to S$9.85 based on~1.1xFY17E P/BV (from ~0.9x previously). –Maybank


OCBC closed at: S$10.56