OCBC
Price target:
DBS “buy” $11
Upgrades on inexpensive valuation
DBS Group Research analyst Lim Rui Wen has upgraded her call on Oversea-Chinese Banking Corporation from “hold” to “buy”, as she sees further upside for the bank on economic recovery and a gradual pick-up in long-end yields.
Lim also sees several upsides to the bank including its strong non-performing asset (NPA) coverage of 109% in 3QFY2020 ended September, which is higher than the 101% in 2QFY2020, and ongoing provisioning of $1.8 billion, as well as its strength in non-interest income franchise. Great Eastern Holdings, its closely-held insurance subsidiary, should continue to provide some income support for FY2021 de-spite the potential net interest margin (NIM) headwinds go- ing into the 4QFY2020.
Lim now expects OCBC to report net profit of $3.27 billion and $4 billion for FY2020 and FY2021 respectively, on better contributions from non-interest income. “We believe the market has priced in lower net interest income impact into FY2021. As we expect some asset quality deterioration into 2HFY2020 and 1HFY2021, especially when the various moratoriums and reliefs expire, we believe the upside is capped at around P/B of 1.0,” states Lim, who has a new target price of $11, from $9.50 previously.
While she sees the bank’s sustained business momentum and the macroeconomic recovery as catalysts to OCBC’s share price, Lim says she remains “conservative” over its income outlook into FY2021–FY2022, as management is “likely to continue adopting strict cost discipline to manage its bottom line”. — Felicia Tan
