CGSI thinks OCBC's coming results for 1QFY2025 ended March 31 is unlikely to beat a high bar set in 1QFY2024.
Tay and Lim expect OCBC to report total income of $3.58 billion for 1QFY2025, 1.3% lower y-o-y but 4.7% higher q-o-q. "We think net interest income softened to $2.35 billion in 1QFY2025 [3.7% lower y-o-y and 4.4% lower q-o-q] as net interest margin (NIM) likely compressed a further 3 basis points (bps) q-o-q to fully reflect the impact of the two interest rate cuts by the US Federal Reserve in October and December 2024 on OCBC's lending rates."
Furthermore, CGSI believes customer loan growth eased off q-o-q in 1QFY2025 after climbing 4.6% q-o-q in 4QFY2024, which was likely a result of "transient, short-term trade loans".
They estimate non-interest income grew a "modest" 3.4% y-o-y while recovering 28.0% q-o-q due to the weak seasonality in 4QFY2024.
See also: OCBC’s $2.5 bil capital return plan charms analysts, with target prices reaching $21.10
According to CGSI, OCBC's cost-to-income ratio (CIR) should have also trended higher at 41% from 37.1% in 1QFY2024 after the completion of its 100% stake acquisition of PT Bank Commonwealth in May 2024, contributing to the 7.6% y-o-y decline in 1QFY2025 overall net profit compared to the record-high net profit in 1QFY2024.
FY2025 performance likely to meet conservative guidance
CGSI previously considered OCBC's FY2025 guidance of 2% NIM, mid-single-digit loan growth, low-40% CIR and 20-25 bps in credit costs as conservative.
See also: RHB downgrades S’pore banks to ‘neutral’, slashing target prices while keeping only DBS at ‘buy’
"However, we revisit its FY2025 guidance following the ongoing trade tension between US and its trade partners that could result in a softer macroeconomic outlook for FY2025 and lower our FY2025 net profit by 5.2% to reflect more muted loan growth and higher credit costs of 25 bps, from 22 bps previously," write Tan and Lim.
Overall, CGSI says its new assumptions translate to a 2.3% earnings decline y-o-y in FY2025, and the lower target price reflects a lower return on equity (ROE) assumption of 12.5% from 13.5% previously.
Upside risks include "exceptional" mark-to-market gains from investment securities under OCBC's insurance arm Great Eastern and "stronger-than-expected growth" of its wealth management fees.
Downside risks, however, include "more drastic-than-expected" Fed rate cuts and a lower FY2025 guidance, which may come when OCBC announces its results on May 9.
Shares in OCBC were trading 4 cents higher, or 0.24% up, at $16.63 prior to the midday break on April 24.
Table: CGSI
