Mixed Reactions Amid Lower-than-Expected Earnings
Singapore analysts have expressed varying opinions on OCBC Bank’s performance following its Q4 FY2021 earnings report, which revealed net profit and revenue falling 19% below consensus expectations.
Diverging Recommendations and Target Prices
Maybank Securities downgraded OCBC from “buy” to “hold,” revising its target price from S$14.67 to S$14.04. In contrast, RHB maintained its “buy” recommendation but reduced the target price to S$14.40 from S$14.80, while DBS Group Research raised it to S$15.
Maybank’s analyst, Thilan Wickramasinghe, highlighted concerns over OCBC’s reliance on market-linked income sources, which could impact earnings during periods of volatility. He also noted potential pressure on medium-term return on equity (ROE) due to limited guidance on capital utilisation.
Challenges Identified
Non-Performing Loans (NPLs): A 31% quarter-on-quarter rise in Q4 FY2021 NPLs was flagged as a potential risk tied to OCBC’s loan growth strategy.
Market-Linked Income Exposure: Nearly 50% of non-interest income is tied to market volatility, higher than DBS’s 20-38% and UOB’s 20-25%.
Operational Costs: Higher operational expenditure and provisions could offset gains from net interest income (NII).
Positive Growth Projections
Despite short-term challenges, RHB and DBS expect long-term growth prospects:
RHB: Projects 16% year-on-year net profit growth in FY2022 and FY2023, with stable dividend payouts.
DBS: Anticipates stronger net interest margins and an ROE increase to 10.5%, supported by an economic recovery and rising interest rates.
Dividend Potential and Valuation
DBS noted that OCBC’s high common equity tier 1 (CET1) ratio of 15.5% could support higher dividends, potentially boosting its share price. The bank’s new corporate strategy was also viewed as a positive step toward sustainable growth.
Market Reaction
By Thursday morning, OCBC shares had declined 4.7%, trading at S$11.97. While challenges remain, analysts believe OCBC’s long-term fundamentals and strategic focus could provide a favourable risk-reward outlook.
