RHB Group Research analysts are keeping their “buy” call on Oversea-Chinese Banking Corporation (OCBC) with a target price of $15, expecting the bank to report a stable 4QFY2022.
OCBC is scheduled to release its 4QFY2022 ended December on Feb 24.
The RHB analysts expect the bank to post a net profit of $1.55 billion for the quarter, down an estimated 3.5% q-o-q mainly due to weaker non-interest income.
Net interest income (NII), which increased a sharp 23% q-o-q in 3QFY2022, is expected to rise further in 4QFY2022 underpinned by net interest margin (NIM) expansion.
Although it is unlikely to match the 35 basis points q-o-q expansion to 2.06% in 3QFY2022, the RHB analysts believe NIM would still edge up to 9 basis points q-o-q to 2.15% in 4QFY2022. This is even as loans are being repriced to reflect the uptrend in interest rates — in 4QFY2022, Singapore’s short term rates are up 100 to 120 basis points q-o-q, the analysts add.
Singapore banking system loans contracted by 4.3% between end-September and end-November last year. OCBC attributes this to businesses deferring investment plans on uncertainty over 2023’s outlook.
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Despite the slippage, RHB analysts have gathered that OCBC would be able to meet its guidance for mid-single digit loan growth in FY2022, in constant currency terms. Reported loan growth would, however, be a slight miss due to the strengthening of the Singapore dollar in 4QFY2022.
OCBC’s wealth management income is expected to remain subdued in 4QFY2022. While the quarter is usually a quiet period for the wealth industry, demand for wealth management products was also impacted by the risk-off sentiment among investors and the preference for cash, the analysts highlight. That said, assets under management are still stable even as the bank continues to focus on driving growth in its wealth business.
Similarly, contributions from OCBC’s subsidiary Great Eastern Holdings in 4QFY2022 may be negatively impacted by marked-to-market losses, the analysts add.
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OCBC has shared that much of the loans under relief assistance have expired, with remaining accounts under indulgence mainly in Indonesia. They add that repayment trends are good, reaffirming OCBC’s belief that the asset quality will be resilient notwithstanding softer GDP growth in 2023.
With asset quality trends unchanged from those in 3QFY2022, the RHB analysts believe FY2022 credit cost would be at the lower end of OCBC’s 15 to 20 basis points guidance.
“While China’s reopening is widely expected to be positive for Singapore, management believes it is still early days to assess the potential impact on the domestic economy and OCBC,” they add.
As at 10.02am, shares in OCBC are trading 13 cents higher or 1.02% up at $12.79.
