OCBC

Kim Eng on 12 Nov 2012

HOLD. OCBC’s 3Q12 core net profit of SGD724m (+12% QoQ, +41% YoY) was above our forecast of SGD624m and consensus’ SGD615m, mainly on account of improved contributions from life insurance and better-than-expected trading income. Our FY12-14 earnings forecasts are correspondingly raised by 4%/2%/1%; TP is lifted to SGD9.60 on rolling forward valuations on an unchanged P/BV target of 1.3x (2013E ROE: 11.2%), vs the target multiple of 1.1-1.2x that we have assigned to its peers. Much of the positives are reflected in current valuations.

NIM compressed less than its peers’ and the group continues to see strong contributions from its life insurance and wealth management divisions. Management guides for ongoing NIM compression into 2013, stemming from higher funding costs from debt issuances this year and the ongoing repricing of the mortgage book in Singapore and Malaysia. NIM pressure should nevertheless be mild and we have modeled in a marginal 3 bps compression for 2013.

Sub-10% loan growth guidance. Loan growth in Malaysia continues to be driven by mortgages and corporate demand. OCBC NISP, meanwhile, is benefiting from the decision to focus on the SME and corporate sector three years ago - loans surged 40% YoY and 9M12 net profit jumped 26% YoY. Indonesia’s contributions to group pretax remain small (3-4%) but are on a rising trend. In Singapore, investment-oriented loan demand remains subdued.

Strong growth in wealth management. Bank of Singapore’s AUM jumped 35% YoY to SGD39b and wealth management revenue jumped 75% YoY, 43% QoQ to make up 28% of group revenue. AUM growth is essentially emanating from clients in South-East Asia, India and China.
Not interested in BAY? It would appear that management is not too keen on the 25% stake in Bank of Ayudhya. Focus will primarily be on its fortifying its existing presence in Malaysia, Indonesia and China.