Oversea-Chinese Banking Corporation (OCBC) unveiled on July 3 its branding and strategic refresh, which includes a target to deliver an incremental $3 billion in cumulative revenue between 2023 and 2025.
Analysts, however, have kept their views for now.
Citi Research analyst Tan Yong Hong, for one, awaits further details from OCBC O39 about its revenue drivers and return on equity, expected at its results briefing for 1HFY2023 ended June on Aug 4.
Ahead of the results release, OCBC is currently in its blackout period. For now, Tan is “neutral” on the bank’s stock, with a target price of $12.50 against its June 3 closing price of $12.31. “We view upcoming results could be a re-rating catalyst for OCBC on possible dividend per share (DPS) surprise and further details on the $3 billion cumulative revenue uplift.”
Tan brings his attention towards OCBC’s “refreshed management committee”, with new heads appointed over the past three years, including at the helm; group chief executive officer Helen Wong joined the bank in February 2020 and took on the top job in April 2021.
In particular, Tan thinks Jason Moo, who joined in March as CEO of OCBC’s private banking subsidiary Bank of Singapore, “could help catalyse the wealth opportunity in Singapore for OCBC”.
Moo was previously Julius Baer’s branch manager and head of private banking in Southeast Asia. Prior to Julius Baer, Moo was at Goldman Sachs for over two decades, where he ran the private wealth management franchise for Southeast Asia and Australia, among others.
Bank of Singapore has tripled its assets under management (AUM) and doubled its revenue since 2013. Now, it aims to grow its AUM to US$145 billion ($195.59 billion) by end-2025 from some US$124 billion currently, while bringing its relationship manager headcount from 400 now to 500 by end-2025.
In FY2022, OCBC net new money was $25 billion, compared to DBS’s $24 billion, notes Tan.
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The new targets
OCBC has benefited “significantly” from the enhancement of its franchise value post the acquisition of Wing Hang Bank in 2014, note DBS Group Research analysts Lim Rui Wen and Tabitha Foo. “Greater China continues to be management’s focus as a key market outside Singapore, contributing [approximately] 15% of the group’s income in FY2022.”
The bank aims to capture rising Asian wealth and support, increasing Mainland China-Hong Hong and Asean-Greater China flows to deepen its regional presence and drive sustainable growth through its One-Group approach, add the DBS analysts in a July 4 note.
To achieve this, the bank plans to accelerate investment in its transaction banking capabilities in Greater China, investing over $50 million over the next three years and targeting more than 500 regional mandates for cash management over the next five years.
It also envisages doubling its investment banking revenue in three years and acquiring more than 26,000 new small- and medium-sized enterprise (SME) customers in Hong Kong over the next three years.
In addition, OCBC aspires to better facilitate Chinese clients to operate in Asean, generating a more than 50% increase in revenue from its Greater China franchise in Asean by 2025.
OCBC is one of the top five foreign players by total assets in Greater China, with $93 billion in assets and a 20% stake in Bank of Ningbo, say Lim and Foo. “Over the past decade, OCBC has made substantial inroads in the region, with Asean currently contributing 60% of its income growth while Greater China revenue saw a 22% CAGR from 2013 to 2022.”
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OCBC has performed well in growing its wealth business, they add, with its Premier Banking and Premier Private Client segments making up 62% of the wealth management fees in 2022 — a 2.5x increase since 2013; and 58% of AUM — a 3.5x increase since 2013.
Looking ahead, OCBC plans to double the AUM of its Premier Banking and Premier Private Client segments for the Greater China market by 2025 by leveraging its twin hubs of Singapore and Hong Kong.
‘Limited catalysts for now’
As the Fed rate comes close to its peak in this cycle, the DBS analysts believe there will be further downside to OCBC’s net interest margins (NIMs), especially as competition for quality loans and pressure from funding costs continues to grow”.
While OCBC’s 1QF2023 ended March NIM held up well at 2.30%, down 1 basis point q-o-q, management guided that NIM has likely already peaked and will trend downwards for the rest of the year, with FY2023 NIM at around 2.2%.
Further downside risks and asset quality risks may emerge, add Lim and Foo. Management’s FY2023 loan growth guidance was revised downwards in 1QFY2023 to a “low to mid-single-digit”, from a “mid-single-digit”.
While asset quality remains benign in 1QFY2023, the DBS analysts believe management will top up general provisions as it guides for a more normalised credit cost of 15 to 20 basis points in FY2023 ended December in a more uncertain environment.
As such, they maintain “hold” on OCBC with a target price of $13. DBS’s target price on OCBC represents a 1x FY2024, below -0.5SD of OCBC’s 12-year forward price-to-book (P/BV) multiple.
“We believe this is a fair valuation, as we see limited catalysts ahead for OCBC’s share price, given more downside risks arising from NIM, loan growth, a more uncertain macroeconomic environment for non-interest income growth, as well as rising asset quality risks,” write Lim and Foo. “We believe the downside to OCBC’s share price will be supported by its strong provisions buffer of 121% and potential excess capital of $5 billion during FY2023.”
Shares in OCBC closed 4 cents higher, or 0.32% up, at $12.35 on July 4.
