“While we have never wavered in our strategic intention to delist Great Eastern, this offer is made to avail to GEH shareholders the opportunity to exit the stock after an 11-month suspension in share trading,” says OCBC’s group CEO Helen Wong in the statement issued by OCBC on June 6.
Tan notes that the latest suspension of listing, which was extended by two weeks ending June 8, signals the possibility of reaching a conclusion to facilitate a delisting.
“In our view, this removes an overhang and the impact to capital of just 30 basis points even if OCBC raises [its] offer price for GEH by 20%,” he writes.
He also believes the latest move should have no impact to the bank’s dividends with its 1QFY2025 common equity tier 1 (CET-1) ratio of 14.5% with a transitory 1.9% lift from Basel reforms.
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“OCBC also has paused buyback since 22nd April, which could be resumed after [the] conclusion of GEH,” he notes.
Beyond the GEH overhang, other factors in OCBC’s favour includes better net interest margin (NIM) stability expected in 2QFY2025 after the bank took in excess deposits in 1QFY2025 likely due to a lower liquidity coverage ratio (LCR), which fell by 8% q-o-q. OCBC Hong Kong, which has the lowest current accounts savings accounts (CASA) ratio compared to its peers, could also help offset the falling Hong Kong interbank offered rate (HIBOR), he points out.
In addition, OCBC’s asset quality is sound with a benign non-performing asset (NPA) formation and offset by recoveries and write-offs. Around 90% of OCBC’s Hong Kong property loans are backed by collateral, compared to DBS’s 94% and United Overseas Bank’s (UOB) 63%.
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Finally, given that the 90-day tariff pause deadline is reaching, on July 8, Tan expects OCBC to outperform its peers especially after underperforming them so far.
Even though analyst is remaining “neutral” on Singapore banks, he has opened a “short-term positive view” on OCBC in anticipation of “rotation within the sector”.
Tan has kept his “buy” call on DBS and “neutral” calls on OCBC and UOB. His target prices for the banks remain at $48.10, $15.80 and $34.70 for DBS, OCBC and UOB respectively.
Shares in DBS, OCBC and UOB closed at $45.12, $16.28 and $35.25 respectively on June 6.
