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

OCBC - Scaling Greater Heights With Record Earnings In 1Q23

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 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/ 2023-05-11

Read also UOB's most recent report:
2024-02-29 OCBC Bank - Quality 4Q23 Earnings With Resilient Asset Quality.

Previous report by UOB:
2023-11-14 OCBC Bank - 3Q23 Delivering Consistency In Execution & Resilient Earnings.

Price targets by 3 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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