OCBC

Kim Eng on 19 July 2012

Hold maintained. The disposal of the OCBC group’s stakes in Fraser & Neave Ltd (F&N) and Asia Pacific Breweries (APB) will result in an exceptional gain of SGD1.15b, which would augment our 2012 net profit forecast by 42% and enhance our book value forecast by 5%. Correspondingly, our target price is raised to SGD8.80 from SGD8.30 to reflect this, on an unchanged 2012 P/BV multiple of 1.27x.

Disposes stakes in F&N and APB. OCBC and 87.2%-owned Great Eastern (GE, SGD13.68) will dispose off their cumulative 8% in APB to Kindest Place Groups for SGD920.2m and their cumlative 18.1% shareholding in F&N to Thai Beverage Public Co Ltd for SGD2.29b.

A premium to traded prices. The disposal at SGD45/APB share and SGD8.88/F&N share represents a premium of 18% and 12% to the closing share prices of the respective stocks. This also translates to a historical P/BV of 9.2x and 1.8x respectively.

Exceptional gain of SGD1.15b. Against holding costs of just SGD0.16/share for APB and SGD0.27/share  for F&N, the disposals will result in a sizeable exceptional gain of SGD1.15b for the OCBC group. A point to note is that GE stands to realize a pretax gain of SGD2.18b from its disposals. However, most of the gains will accrue to the insurance funds and the portion that will accrue to the shareholders’ funds is just SGD421.6m, of which OCBC’s 87.17% share works out to be SGD367.5m. Adding on OCBC’s own post-tax gain of SGD785.9m translates to a total post-tax gain of SGD1.15b for the group.

Impact to OCBC’s financials. We expect this gain to augment OCBC’s 2012 reported net profit forecast by 42% and enhance book value by 5%. We also expect it to raise our Tier-1 capital ratio estimate by 70 bps to 15.2% from 14.4% and our RWCR to 16.6% from 15.7%.