SINGAPORE (June 28): UOB KayHian is maintaining its ‘buy’ call on Oversea-Chinese Banking Corporation (OCBC) with a target price of $11.70.
The bank is divesting its 33.3% stake in Hong Kong Life Insurance for $426 million and the proceeds are to be re-invested into its core wealth management business and high-growth emerging markets, such as Indonesia and China.
OCBC and subsidiary Great Eastern have jointly announced that they are conducting a strategic review and have received proposals from several parties regarding their combined stakes in United Engineers (UE) and WBL Corporation (WBL).
OCBC and Great Eastern owns a 4.1% and 12.6% stake in UE respectively.
UE has attracted many suitors as its core businesses comprise property development, hospitality, engineering and distribution. It owns UE BizHub CITY, UE BizHub EAST and mixed development One-North. It also owns a stable of shopping malls, including Rochester Mall, Seletar Mall and UE Square Shopping Mall.
UE made a general offer for WBL at $4.50 in 2013 and owns 96.3% of WBL. Perennial Real Estate and its consortium partners have submitted a bid to acquire UE. Other bidders could include KKR & Co, Haiyi Holdings, Samling Group and Ascendas-SingBridge.
In a Wednesday report, analyst Jonathan Koh expects a small positive impact from divestment of UE. Total proceeds from the divestment of the combined 16.7% stake in UE would be $292.8 million, based on current market price of $2.75/share.
“We estimate the positive impact on CET-1 CAR, currently at 12.2%, by up to 12bp assuming Great Eastern distribute its share of proceeds as special dividend,” says Koh.
In May, OCBC announced it was acquiring National Australia Bank’s (NAB) private wealth business in Singapore and Hong Kong at about 1x P/B. The business comprises a US$1.7 billion ($2.4 billion) mortgage portfolio and deposits of US$3.1 billion.
NAB has 7,000 customers in Singapore and 4,000 customers in Hong Kong. This is a small acquisition that will marginally boost OCBC’s total loans by 1.1% and total deposits by 1.5%. The acquisition is expected to be completed by end 17 and would be earnings accretive within the first year after completion.
Shares in OCBC are trading 2 cents lower at $10.71.
