In a Jan 25 note, RHB Group Research is maintaining “buy” on OCBC Bank, but with a lowered target price of $14.80 from $15.10 previously. The new target price represents a 20% upside and 4% yield.
Net interest margin (NIM) is set to be stable in 4QFY2021. “Management guides for NIM to be stable q-o-q at 1.52% in 4QFY2021 and average at 1.5-1.55% for FY2021,” says RHB Group Research.
OCBC Group Treasury expects the US Federal Reserve to raise rates by three to four times in 2022. A 12-month impact from a 100bps rise in interest rate would add $800 million in net interest income (NII) and boost net profit by 12-13%. For now, liquidity remains ample and there is no sign of any significant competition for deposits, says RHB Group Research.
Meanwhile, loan growth is within target. OCBC is on track to deliver high single digit loan growth for FY2021F, helped by demand from the healthcare, transportation, logistic and data centre sectors, and green financing, says RHB Group Research.
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“The December 2021 property cooling measures will not impact mortgage growth over the next few quarters. Thanks to robust sales of housing loans, OCBC has enough inventory to support growth,” they add.
Finally, OCBC Bank sports healthy core fee income, says RHB Group Research. “Wealth management continues to be the bright spot and focus area for OCBC. That said, sales are expected to be softer in 4QFY2021 due to seasonality factors.”
Management expects cumulative FY2020-2021F credit cost to be at the lower end of its guidance of 100-130bps. This suggests credit cost of 33-67bps for FY2021F, compared to 25bps for 9M2021. “Management overlays are sufficient for Omicron-related impairments and there will be no provision writebacks in FY2021. OCBC remains hopeful credit cost would normalise to 20-25bps in FY2022F.”
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Following the phishing scam in December involving nearly 470 customers losing a total of some $5 million, OCBC has further enhanced security measures, including those announced by the Monetary Authority of Singapore (MAS) and the Association of Banks in Singapore (ABS).
“While describing the scam attacks as highly sophisticated, management added that OCBC’s online banking system was not hacked. To reflect heightened risks from sophisticated scam attacks faced by the banking industry, we tweak slightly OCBC’s ESG score to 3.20 from 3.30. As a result, the ESG premium, based on RHB’s proprietary ESG methodology, is reduced to 4% (from 6%) and our TP lowered to $14.80. The stock’s intrinsic value of $14.26 is unchanged.”
As at 12.25pm, shares in OCBC are trading 19 cents lower, or 1.54% down, at $12.11.
