UOB Kay Hian Research has added OCBC Bank to its alpha picks portfolio for the month of January.
The move comes after the team’s portfolio saw a flat month in December, which stood 0.2% higher month-on-month (m-o-m), compared to the benchmark Straits Times Index’s (STI), which grew 2.7% m-o-m.
“Our portfolio was hurt in December 2021 by the lack of financial sector exposure which rose by an aggregate 2.5% m-o-m,” writes the team in a Jan 3 report.
“The STI’s performance would have been better if not for poor share price performance from the Jardine companies which saw Hongkong Land and Jardine Matheson decline by 5.6% and 4.6% m-o-m respectively,” it adds.
“Within our portfolio, the outperformers were Ascott Trust (4.0% m-o-m), Frasers Logistics & Commercial Trust (+3.4% m-o-m) and Yangzijiang (+3.1% m-o-m); this was more than offset by small cap underperformers such as Uni-Asia (-6.8% m-o-m), Sembcorp Marine (-3.5% m-o-m) and Civmec (-2.2% m-o-m).”
With the addition of OCBC, the team says it prefers the bank over DBS due to its better 2022 earnings growth of 3% y-o-y versus DBS’s 2% decline.
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This is driven by the team’s “expectation of 7.1% y-o-y loan growth and 1.53% net interest margin (NIM) in 2022” for OCBC.
“In addition, we view OCBC’s valuations as inexpensive given its 2022 price-to-book (P/B) of 1.0 times. Our target price for OCBC of S$15.35 implies 35% upside from current share price levels,” it adds.
UOB Kay Hian analyst Jonathan Koh has rated “buy” on OCBC in anticipation of the stellar loan growth in 2022.
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“OCBC’s management guided for high single-digit loan growth for 2022. We expect the pick-up in loan growth in 2HFY2021 to be sustained into 2022 while NIM is expected to be stable at 1.51-1.52%. Credit costs are expected to be 21 basis points, which is similar to the level seen in 3QFY2021,” he writes.
Meanwhile, the team has removed Thai Beverage (ThaiBev) from its alpha picks portfolio due to Thailand’s current Omicron situation and the government’s movement control measures and its short-term impact on consumption.
That said, the team says it remains bullish on the counter’s post-Covid-19 recovery prospects.
“[We] will relook [at the counter] when the Omicron situation improves,” it writes.
Photo: Bloomberg
