• Still NEUTRAL, new SGD14.80 TP from SGD13.90, 5% upside. 1Q24 results were a beat on better-than-expected non-II and credit cost tracking below estimates. No changes to guidance, but OCBC Bank thinks 2024 ROE could land at the upper end of the 13-14% guided range. It has launched a SGD1.4bn offer to acquire the remaining 11.6% stake in Great Eastern Holdings (GE SP, NR). If successful, the impact will not be too significant on earnings or capital, but there could be capital management opportunities.

• 1Q24 results beat, with reported net profit of SGD2bn (+22% QoQ, +5% YoY) at 29% of our and 28% of Street’s FY24 estimate. 1Q24 non-II was ahead of estimates (30% of full-year) while credit cost of 16bps was trending below our 24bps assumption. 1Q24 reported ROE was 14.7% (FY23: 13.7%) while CET-1 was up 30bps QoQ to 16.2%.

• Results highlights. Non-II (+17% YoY; +47% QoQ) was a standout in 1Q24 with all cylinders firing. Treasury income surged 31% YoY (+60% QoQ) on improved customer and non-customer flow income, while insurance contribution jumped 21% YoY (+228% QoQ). Fees rose by a more modest 6% YoY (+4% QoQ), mainly from wealth. NII was up 4% YoY (-1% QoQ) on asset growth but NIM eased 3bps YoY (-2bps QoQ) on higher funding cost. Opex growth was in line with operating income growth, at 8% YoY (+3% QoQ) while credit cost stayed low at 16bps (1Q23: 12bps; 4Q21: 21bps) despite a slight uptick in NPLs QoQ (+8% QoQ; -6% YoY). Loan growth got off to a decent start (+2% YoY; +1% QoQ) while deposits rose 1% YoY/+2% QoQ.

• Briefing highlights: OCBC was somewhat guarded, citing global uncertainties (eg geopolitical tensions). It retained its 2024 targets and guidance. However, amid the higher-for-longer rates environment, and improved sentiment and customer activities, OCBC now thinks NIM and ROE will end up at the upper end of the 2.20-2.25% and 13-14% guided ranges. However, loan growth guidance was retained at the low single-digit level, given the current uncertainties. As for the uptick in NPLs, this relates to a couple of ASEAN names, but was not systemic. On its targeted SGD3bn incremental revenue uplift from the strategy refresh, SGD500m was realised in 2023 and OCBC targets to achieve another SGD1bn this year.

• GE offer: OCBC sees this as an opportunity to further optimise capital and strengthen the wealth pillar. The impact of a successful offer: i) PATMI: +1- 2%; ii) ROE: +20bps; iii) CET-1 ratio: -60bps (not too significant). OCBC still guided for 50% dividend payout ratio, but we think there could be capital management opportunities as part of OCBC’s efforts to optimise capital structures at its subsidiaries. If the offer fails, we do not discount the possibility of OCBC returning this (or a portion of) 60bps CET-1 (c.31 cents) as dividends.

• Forecasts, ESG. Following the better-than-expected results, we raise FY24- 26F earnings by 5% pa, and our TP to SGD14.80 (includes 2% ESG premium).

Source: RHB Research - 13 May 2024