OCBC Bank - UOB Kay Hian 2023-02-27: Ushering In A New Regime Of Certainty For Higher Dividend Payout

OCBC Bank - Ushering In A New Regime Of Certainty For Higher Dividend Payout

  • OCBC’s net interest income grew by a hefty 60% y-o-y driven by massive NIM expansion of 79bp y-o-y in 4Q22. Results were dragged lower by unrealised valuation losses from Great Eastern.
  • - Read this at SGinvestors.io -
  • OCBC provides dividend yield of 5.9% and 6.3% for 2023 and 2024 respectively. Maintain BUY. Target price: S$18.25.

OCBC's 4Q22 Results

  • OCBC (SGX:O39) reported net profit of S$1,306m for 4Q22 (up 34% y-o-y but down 19% q-o-q), below our forecast of S$1,503m. See OCBC's announcement dated 24 Feb 2023.
  • - Read this at SGinvestors.io -
  • Subdued non-interest income. Fees were down 25% y-o-y and 12% q-o-q. Contribution from wealth management dropped 44% y-o-y due to subdued investment activities. Contributions from life and general insurance dropped 78% y-o-y to S$66m as Great Eastern (SGX:G07) incurred unrealised valuation losses caused by using lower discount rates to value its insurance contract liabilities.
  • Discipline in cost control. Operating expenses increased 1% y-o-y in 4Q22. Staff costs increased marginally by 1.8% y-o-y. Cost-to-income ratio was healthy at 43.3%.
  • NPL ratio was stable at 1.2%. NPL for Greater China increased by 21% or S$157m due to the downgrade of a real estate customer in Hong Kong. The exposure is fully secured with loan-to-value at more than 60%. It is not related to the China property market.
  • Beefing up general provisions. Total provisions were S$314m in 4Q22 (3Q22: S$154m). OCBC set aside general provisions of S$213m after updating its macroeconomic variables (MEV) model to reflect a prudent view of economic conditions.
  • Accumulating surplus capital. CET-1 CAR improved 0.8ppt q-o-q to 15.2% as risk-weighted assets (RWA) declined due to optimisation and currency translation.
  • An upgrade in dividend policy. The board has proposed a final dividend of S$0.40 (+43% y-o-y), bringing FY22 total dividend to S$0.68 and dividend payout ratio at 53% for full-year 2022. See OCBC's dividend dates. Management intends to maintain dividend payout ratio at 50% going forward.

OCBC's guidance for 2023.

  • Read more at SGinvestors.io.

Above is the excerpt from report by UOB Kay Hian Research.
Clients of UOB Kay Hian may be the first to access the full report in PDF @ https://www.utrade.com.sg/.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-02-27

Read also UOB's most recent report:
2023-08-07 OCBC 2Q23 - Delivers Resilient Earnings & Promised Dividend Payout.

Previous report by UOB:
2023-07-13 OCBC - Upside From New Dividend Policy & Potential Capital Management.

Price targets by 5 other brokers at OCBC Target Prices.

Listing of research reports at OCBC Analyst Reports.

Relevant links:
OCBC Share Price History,
OCBC Announcements,
OCBC Dividends & Corporate Actions,
OCBC News Articles


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