SINGAPORE (Oct 27): OCBC’s net profit of $1.057 billion in 3Q17 was in line with consensus estimates.
This was driven by 12% y-o-y growth in net interest income and flattish non-net interest income owing to disposal gains last year.
Expenses were well managed and impairment charges were the lowest so far this year.
Around half were for the continued decline in O&G collateral valuations.
See: OCBC's 3Q earnings rise 12% to $1.06 bil on broad-based growth across key markets and businesses
UBS says management suggested that the O&G sector was stabilising.
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This was owing to more chartering activity, new capital and investments in the sector & sustained demand for oil.
As a result, O&G asset quality might not worsen further.
“This is a positive change in OCBC guidance — which in our view has been the most conservative among peers (and correctly so),” says analyst Aakash Rawat.
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In May, UBS downgraded the stock from “buy” to “neutral” after being positive since last year.
While UBS acknowledges the improved outlook and pickup in activity, it also believes that this is being priced in the current valuations.
“We don’t see any visible catalyst for a rerating of the stock and expect the performance to be largely in line with market,” says Aakash who is keeping OCBC at “neutral” with $12.20 price target.
Elsewhere, DBS says OCBC’s 3Q17 results is evidence of its positive view on the bank.
Apart from its sustained strong showing of its non-interest income franchise, its banking operations are picking up well.
Net interest margin is gradually improving and should hold up going into 2018. Positively, loan growth is strong with DBS’ FY17 forecast of 7%.
Management is now guiding for 7-8% loan growth for FY17-18. Wealth management and insurance operations are holding up well, and will remain a key differentiator of growth vs peer.
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Asset quality issues pertaining to the oil & gas segment have been dealt with, and sufficient provisions are said to have been made although there may be some tweaks necessary when IFRS9/SFRS109 is implemented.
As such, analyst Lim Sue Lin says DBS is reiterating its “buy” with target price at $13.50.
Meanwhile, CIMB is upgrading OCBC to “add” as all engines are purring.
“In our view, results were positive, and demonstrated the banks’ holistic franchise in its banking, insurance and wealth management platforms,” says analyst Yeo Zhi Bin.
OCBC’s 9M17 net profit of $3.1 billion was broadly in line with its expectation, forming 79% of its FY17 forecast.
3Q17 non-NII was 1% higher at $978 million, supported by wealth management and Great Eastern.
A key positive from the results briefing, says CIMB, was guidance of FY18 loan growth of 7-8%.
Yeo also believes that the oil & gas situation has stabilised and non-performing assets (NPA) formation would moderate.
CIMB has a target price of $12.60.
Maybank Kim Eng has raised OCBC’s FY17-19 core net profit by 5-7%, saying the lender is showing positive growth momentum.
With the change in EPS forecasts, Maybank’s assumed sustainable ROE is now 12%, COE at 10.5% ad growth rate at 3.5%.
Despite margin compression from competition chasing for high-quality credit business, Maybank is maintaining its forecast of slightly higher NIMs of 1.69-1.70% across FY18-19 on the back of higher interest rates.
“Accordingly, our target price is raised 9% to $12.00, based on 1.2 times FY18 book value,” says analyst Ng Li Hiang.
However, with less than 10% upside its target price, Maybank is maintaining its “hold” call.
Shares in OCBC are up 11 cents at $11.68 or 12 times UBS’ forecast FY17 earnings.
