OCBC - UOB Kay Hian 2023-05-11: Scaling Greater Heights With Record Earnings In 1Q23

OCBC - Scaling Greater Heights With Record Earnings In 1Q23

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OCBC (SGX:O39) | SGinvestors.ioOCBC (SGX:O39)
  • OCBC is committed to maintaining dividend payout ratio at 50%. Management is comfortable with a lower CET-1 CAR of 14.0% and will consider all options for capital management, including special dividends.
  • - Read this at SGinvestors.io -
  • OCBC provides attractive dividend yield of 6.1%/6.5% for 2023/24. Maintain BUY. Target price: S$17.32.

OCBC's 1Q23 Results

  • OCBC Bank (SGX:O39) reported record net profit of S$1,879m for 1Q23 (up 39% y-o-y and 44% q-o-q), significantly above our forecast of S$1,706m and consensus estimate of S$1,585m. ROE also reached a new high of 14.7%.
  • - Read this at SGinvestors.io -
  • Green shots of recovery for fee income. Fees were down 13% y-o-y due to a high base but rebounded 14% q-o-q. The sequential rebound was driven by wealth management fees, which recovered 37% q-o-q. OCBC benefitted from net new money inflow of S$10b in 1Q23. AUM increased 7% y-o-y to S$270b. Loan-related fees grew 4% y-o-y.
  • Stable contributions from insurance business. Contributions from life and general insurance normalised to S$238m in 1Q23 (Great Eastern (SGX:G07)'s 4Q22 performance was affected by valuation losses from insurance contract liabilities). The adoption of SFRS(I) 17 would move mark-to-market for insurance assets and liabilities to fair value through other comprehensive income (FVOCI) (direct to balance sheet). Great Eastern's contribution to OCBC's P&L would be less volatile going forward.
  • CIR ratio below 40%. Operating expenses were tightly controlled and increased marginally by 3% y-o-y in 1Q23. Staff costs increased 7% y-o-y. Cost-to-income ratio (CIR) improved 6ppt q-o-q to 37%. Other operating expenses were lower 38% q-o-q primarily due to Great Eastern's adoption of SFRS(I) 17, whereby insurance-related expenses are deducted against insurance revenue. On a like-for-like basis, CIR would have improved about 4ppt q-o-q.
  • Asset quality is benign. NPL ratio improved 0.1ppt q-o-q to 1.1% as recoveries and upgrades of S$258m (from industry sectors previously affected by COVID-19, such as manufacturing, hospitality, transportation and construction) exceed new NPL formation of S$174m. NPL balance eased more significantly in Indonesia and Greater China. Credit costs were 12bp in 1Q23, which is below guidance of 15-20bp.

OCBC management's guidance for 2023

  • Read more at SGinvestors.io.



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



Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-05-11



Read also UOB's most recent report:
2025-02-27 OCBC - Dividend Payout Ratio Raised To 60% For 2024 & 2025.

Previous report by UOB:
2024-11-11 OCBC - The Tide On Capital Management Has Turned.

Price targets by 4 other brokers at OCBC Target Prices.

Listing of research reports at OCBC Analyst Reports.

Relevant links:
OCBC Share Price History,
OCBC Announcements,
OCBC Dividend Payout Dates & Corporate Actions,
OCBC News






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