The Singapore research team at RHB Bank Singapore has kept its “neutral” call on Oversea-Chinese Banking Corporation (OCBC) ahead of the bank’s results for the 4QFY2023 and FY2023 ended Dec 31, 2023, on Feb 28.
To the team, the bank’s results for the final quarter should come as expected although its dividends may be a surprise.
For the FY2023, the team expects the bank’s results to meet their estimates as well as that of the consensus.
“A peaking rates cycle will likely lead to income pressures and dampen share price performance of Singapore banks under coverage. However, decent dividend yield should provide downside support,” it writes.
On a q-o-q basis, the team is expecting a slight easing in the bank’s 4QFY2023 bottomline on the back of lower non-interest income and catch-up on operating expenditures (opex). However, OCBC’s earnings should still register y-o-y growth from a stronger net interest income (NII) and lower loan impairments.
For the quarter, the RHB team expects to see sustained loan growth with weakness in trade-related loans cushioned by stable mortgage and non-trade corporate lending.
“OCBC noted pockets of aggressive mortgage pricing in 4Q, but refrained from competing aggressively despite its ample liquidity. 3QFY2023 loan book contracted by 2% YoY (+1% y-o-y, constant currency terms) and for FY2023, growth should look broadly similar (FY2023 guidance: low-single digit growth),” says the team.
Meanwhile, the bank has ample liquidity (with a loan-to-deposit ratio of 79.9% for the 3QFY2023), which has allowed it to run off some of the costlier fixed deposits to keep funding cost pressures manageable.
“Recall that 3QFY2023/9MFY2023 net interest margin (NIM) of 2.27% and 2.28% were trending ahead of the [estimated] 2.25% guidance. OCBC had guided for a weaker 4Q NIM q-o-q on muted loans growth, deposit competition and lower exit NIM (of 2.23%) – all of which appear to have shaped up as expected,” says the team.
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The final quarter of the year is a seasonally soft one for wealth management activities and the RHB team expects OCBC’s 4QFY2023 results to be no exception. The team also expects the bank’s trade- and loan-related fees to reflect the continued softness in loans growth.
However, card fees are expected to be a “bright” spark for the bank, similar to one of its peers, whose card fees remained healthy in the 4QFY2023 thanks to the holiday season.
Overall, non-interest income in the 4QFY2023 is unlikely to excite, unless insurance and non-customer flow trading income surprises positively.
Other positives identified by the team: the bank’s asset quality, in which the team expects to see relatively stable credit cost q-o-q in the 4QFY2023; and the acquisition of PT Bank Commonwealth
The latter is a “smallish, bolt-on acquisition” that will help OCBC Indonesia’s operations broaden its product offerings such as auto financing, as well as help it build scale. There is also little overlap in the customer base between both parties.
“Near-term, the deal is not likely to have any major impact on capital or earnings but should be positive over the longer term,” says the RHB team.
While the team has no changes to its earnings forecasts, it expects a final dividend per share (DPS) of 38 cents, which would bring OCBC’s DPS for the FY2023 to 78 cents, above the 68 cent-dividend in FY2022. FY2023’s estimated dividend represents a yield of 6% and a payout of 49.5%.
The team has lowered its target price to $13.40 from $13.70 to reflect its new 0% environmental, social and governance (ESG) premium and, or discount after a change in the country’s median ESG score.
Shares in OCBC closed 10 cents lower or 0.77% down at $12.88 on Jan 29.
