OCBC

Kim Eng on 18 Feb 2013

Within expectations. OCBC’s FY12 recurring net profit of SGD2.82b (+23.9% YoY) was within expectations. We raise our FY13-14 earnings forecasts by a marginal 4% to factor in lower credit costs, and up our TP to SGD10.50 (+9%) on a higher 1.4x P/BV target (1.3x previously) to factor in a higher FY13 ROE expectation of 11.9% (from 11.1%). While we view positively the strong growth in the group’s wealth management businesses, much of this is factored into the current share price. Prefer DBS (BUY, TP: SGD17.60) for its more attractive valuations (2013: PER 10.6x, P/BV 1.1x, ROAE: 10.6%, yield: 3.7%) and the strong growth in its non-traditional income channels.

Positively, loan growth picked up momentum in 4Q12, up 3% QoQ vs 1% QoQ in 3Q12, with a healthy replenishment of China trade financing loans. Management has guided for high single-digit loan growth in FY13 (FY12: +7%). CASA improved to 50.6% of total deposits at end-2012 from 47.2% at end-Sep 2012, as the bank captured new corporate/ commercial operating accounts, which also contributed to a decline in the group’s USD LDR to 101% at end-2012 from 163% at end-2011.

Conversely, NIMs remained under pressure, contracting a further 5bps QoQ to 1.70%, taking total contraction for the year to 15bps. Management guides for NIM compression to continue, but to a lesser degree than in FY12, on the back of ongoing funding cost pressure as well as the repricing of the group’s mortgage book.

Non-core gains retained to grow core assets. Dashing hopes of a special dividend, management emphasised that gains from the sale of F&N and APB will be retained for future growth. The group’s capital ratios have been greatly enhanced by the disposals, with its core capital ratio strengthening from 14.4% at end-2011 to 16.6% at end-2012.

Areas of focus moving forward continue to be wealth management, Indonesia and China. OCBC NISP’s strength is in the mass commercial market; it also hopes to build on the SME and retail divisions. In China, OCBC is strong in the high-end segment and sees much opportunity to build on offshore business from China.