OCBC - Strong fees, but rising NPLs

OCBC’s S$1,048m 2Q15 net profit beat our estimate by 6% and was 8% above consensus, due mainly to a S$105m net gain on the sale of GEH’s stake in New China Life. Excluding the gain, 1H15 core net profit would have been broadly in line at 48%/50% of our/consensus full-year forecast. OCBC’s fee engine remains robust, with strong growth in brokerage and investment banking fees while wealth management remains the key driver. NIMs did not disappoint, rising 5bp qoq on the back of improved customer loan yields. While the NPL ratio was relatively stable at 0.7%, there was a pick-up in oil & gas-related NPLs in Indonesia and Malaysia. We shave our estimates and lower our GGM-based target price to S$11.65. OCBC remains an Add, potentially catalysed by the realisation of synergies with Wing Hang Bank.

NIMs recovered; loan growth 2% in constant currency
NIM rose 5bp qoq to 1.67% as OCBC benefited from better customer loan spreads with the hike in SIBOR. However, NIM contracted 3bp yoy given higher funding costs and lower interbank yields as gapping opportunities in the onshore-offshore Rmb market faded. Loans came in flat qoq but were up 2% in constant currency terms. Greater China and Indonesia were the only two markets that saw qoq loan growth. Singapore loan demand remained lacklustre. OCBC continued to guide for mid-single-digit loan growth in 2015.

Robust fee engine; gains from GEH countered trading fall
OCBC’s fee income growth was impressive (+11% qoq), with growth seen across all segments. Brokerage fees (+45% qoq) and investment banking (+58% qoq) did especially well. But the key driver remains wealth management, which now contributes 31% of the group’s income. Bank of Singapore’s AUM has been steadily rising to US$54bn, partly contributed by cross-selling wealth management services to OCBC Wing Hang’s SME client base. During the quarter, OCBC recognised a S$105m net gain as GEH pared down its equity stake in New China Life from 10% to 1.8%; this helped buffer the fall in trading income (-43% qoq) and lower profit contributions from GEH (-27% qoq).


Technical Analysis
Daily Chart
NPL ratio stable but oil & gas portfolio to see stress
NPL ratio rose marginally to 0.7% (1Q: 0.6%), as a result of an uptick in Malaysia (2Q: 1.9%, 1Q: 1.6%) and Indonesia (2Q: 1.7%, 1Q: 0.7%). These related to two oil & gas loans that were booked in Singapore and amounted to c.S$150m. Guidance is for SPs to rise from the current 9bp, with further stress in the oil & gas portfolio a likely scenario as oil prices remain low. (Read Report)

Read Related Reports
Oversea-Chinese Banking Corporation - 2Q15 underlying results in line; ASEAN NPLs spike
Monday, 3 August 2015
- Credit Suisse Asia Pacific Equity Research
OCBC - Good Improvement In 2Q15
Monday, 3 August 2015
- RHB Research

Source : CIMB Research

Labels: ,