CIMB Research, Sept 2
OCBC's 2012 ROE beat peers because GEH's accounting earnings were buoyed by the rising bond market. The reverse is now true. We expect OCBC's ROE to lag peers now, making it difficult to justify current valuations ...
As OCBC currently has the highest exposure to problematic Indonesia and India, it is likely that its non-performing loans will deteriorate to the same level as its peers'. Coming from especially low levels, increasing credit costs will pose a potential headwind to earnings.
Our Gordon growth model-based target price of S$10.09 (based on 1.27 times 2013 P/B) remains unchanged. Maintain "underperform", with the de-rating catalysts of rising interest rates, poor investment appetite from private banking clients, and eventually, rising credit costs. OCBC remains our least preferred Singaporean bank.
UNDERPERFORM
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