Thursday, 7 August 2014


Kim Eng on 5 Aug 2014

  • 2Q14 beat expectations on strong net trading income and profit from life assurance.
  • NIM held up well, solid credit quality, ample SGD liquidity (81.6% SGD LDR), though loan growth slowed.
  • Purchase of WHB remains a concern. Maintain HOLD and TP of SGD9.63, based on 1.24x average FY14E-15E P/BV. Top sector pick is DBS.
Ahead of market and our expectations…
2Q core PATMI of SGD921m (+6.2% QoQ, +54.3% YoY) took 1H14 core PATMI to SGD1.79b (+38.3%). This formed 59% of our FY14E forecast. The positive surprise came from net trading income (better customer flows), profit from life assurance of SGD220m (1Q14: SGD183m, 2Q13: SGD16m) and a better NIM. Better life insurance profit was fuelled by higher marked-to-market gains on favourable interest rates and tighter credit spreads.

… though nothing out of the ordinary
Like DBS, OCBC’s NIM held up well, at 1.70% (flat QoQ, +6bps YoY), with better asset yields (+2bps QoQ, +8bps YoY). This cushioned higher cost of funds (+2bps QoQ, +1bp YoY). Loan growth slowed to 1.2% QoQ or 11.7% YoY (1Q14: +3.3%, +18.1%), due to weaker demand for trade loans. Mirroring its peers, OCBC’s SGD deposits contracted 1.6% QoQ, taking its SGD LDR to 81.6% (DBS: 76.6%, UOB: 100.1%). Asset quality was resilient, with housing NPLs staying at SGD253m QoQ.

Reiterate HOLD; WHB purchase an overhang
We leave our forecasts unchanged for now pending our sector review. Its purchase of Wing Hang Bank (WHB) remains an overhang. While cheap, we believe its share-price weakness will persist. Reiterate HOLD with a TP of SGD9.63, based on 1.24x average FY14E and FY15E P/BV.

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