Analysts are positive on Oversea-Chinese Banking Corporation (OCBC) following its 1HFY2021 ended June results announcement on August 4.
See: OCBC’s 2Q21 net profit rises 59% to $1.16 bil, interim DPS of 25 cents declared
Maybank Kim Eng kept its “buy” call with a higher target price of $14.30, up from $14.17 previously. RHB Group Research and DBS Group Research also kept their “buy” calls, with unchanged target prices of $14.30 and $14 respectively. Similarly, CGS-CIMB Research maintained its “add” call and target price of $13.75.
Meanwhile, PhillipCapital kept its "buy" call but with a lower target price of $14.22, down from $14.63 previously.
OCBC’s 1HFY2021 profit after tax was ahead of Maybank Kim Eng analyst Thilan Wickramasinghe’s expectations.
Following the results announcement, Wickramasinghe believes OCBC shows signs of an inflection point, citing net interest margins that have stabilised, rising loan growth, and increasing fee momentum.
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“Overall, we believe OCBC is well placed to deliver 12% y-o-y pre-provision operating profit (PPOP) growth in 2021 following a 9% y-o-y fall in 2020,” he says.
Despite “pockets of stress” in its ASEAN operations due to Covid-19 resurgences, Wickramasinghe believes higher dividends may be on the horizon. “[The] group’s gearing towards North Asia and Singapore together with a rising share in sustainability finance (50% of 2Q2021 lending was green), gives it a strong platform for medium-term growth, while also providing dividend upside risks,” he explains.
He has raised his FY2021-2023 earnings per share (EPS) forecast by 1%-3%, reflecting a better insurance and North Asian outlook. Noting that the bank’s CET1 CAR of 16.1% is the highest amongst peers, he believes OCBC has the capacity to increase dividends. “We raise 2021 DPS to 55 cents (from 48 cents),” he adds.
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For RHB’s Singapore Research team, OCBC’s 1HFY2021 earnings were in line with their estimates, largely on account of its 1QFY2021 performance.
The team believes OCBC’s underlying operations remain resilient in the 2QFY2021, despite Covid-19 cases rising. “We believe OCBC remains on track to a sharp earnings recovery in FY2021, supported by healthy non-II growth and lower provisions,” the team says.
The team’s target price of $14.30 is maintained following minor tweaks to their forecast which kept FY2021-FY2023 earnings relatively unchanged.
For CGS-CIMB analysts Andrea Choong and Lim Siew Kheng, OCBC’s excess capital of some $6 billion over its 13.5% efficient CET1 ratio is a catalyst for the stock. “Its 16.1% CET1 ratio is a key offence and defence tool – whether in hiking FY2021 DPS, for an EPS-accretive acquisition, or to guard against NPLs,” they remark.
Similar to other analysts, Choong and Kheng anticipate higher dividends in the second half of the year. “While management reiterated its stance on paying sustainable and predictable dividends, we see scope for a higher 2H2021 payout given its steady asset quality track record given the moratorium concerns in FY2020, its management overlay buffer, lack of M&A target and robust income streams across banking, wealth, and insurance,” they say.
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While DBS analyst Lim Rui Wen's target price of $14 remains unchanged, she believes there is further room for OCBC’s share price to re-rate, given the “high certainty” in earnings growth for FY2021.
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“The strong business momentum in 1Q2021 is likely to continue in subsequent quarters, as OCBC revises up its loan growth guidance to mid-to-high single digit (from mid-single digit). Non-interest income drivers including wealth management and recovery in insurance business, as well as lower credit costs, will continue to support strong earnings recovery,” she says.
She also notes that OCBC’s strong non-performing assets (NPA) coverage at 104% will likely limit downside risks and provide share price support, and anticipates higher dividends may also be a potential share price catalyst.
Meanwhile, PhillipCapital's Terence Chua says OCBC's 2QFY2021 earnings missed his expectations by 7% due to higher-than-expected allowance.
He has reduced his FY2021 earnings forecast by 2.3%, reflecting higher allowances in view of the uncertain economic outlook. "We peg our target price at 1.24 times P/BV and 9.3% FY2021 ROE," he says.
As at 10.21am, shares in OCBC are trading down 3 cents or 0.24% lower at $12.40.
Photo: Bloomberg
