• Stay NEUTRAL, with new SGD16.80 TP from MYR15.70, 5% upside. 9M24 results were in line on expectations that 4Q will be a softer quarter. Asset quality and capital remain solid but investors may be somewhat disappointed on the lack of clarity, for now, regarding management’s plans for excess capital. FY25F PATMI and DPS should stay flat and coupled with the above, we do not expect a meaningful outperformance from OCBC Bank vs peers.

• Good set of 3Q24 results, with net profit of SGD2bn (+2% QoQ, +9% YoY) bringing 9M24 PATMI to SGD5.9bn (+9% YoY) – at 78-79% of our and Street FY24 estimates. We expect a weaker 4Q as rate cuts kick in, coupled with seasonality and as such, we retain our forecasts. 9M24 reported ROE was 14.4% (FY23: 13.7%), while fully phased-in CET-1 ratio based on Basel III reforms remained solid at 15.6% (2Q24: 15.5%; 4Q23: 15.9%).

• Results highlights. Non-II (+14% QoQ, +41% YoY) drove income this quarter. Fees (+9% QoQ, +10% YoY) were underpinned by wealth management (+16% QoQ, +25% YoY) while trading income jumped 43% QoQ (+135% YoY) as non-customer flows more than doubled QoQ, further supported by higher customer flow income. Otherwise, NII was flattish as asset growth helped compensate for NIM pressure (-2bps QoQ, -9bps YoY) as OCBC moved liquidity into high quality butlower yielding assets, and higher funding cost. Both loans and deposits were flat QoQ. Opex growth outpaced income growth during the quarter due to the increase in business activities but 9M CIR of 38% was stable YoY. Credit cost ticked up to 22bps from 15bps in 2Q24 due to allowances for non-impaired assets and with non-performing assets (NPAs) improving, allowance coverage was beefed up further to 148% vs 2Q24: 138%.

• Guidance and outlook. Management’s 2024 guidance was broadly unchanged and in line with 9M trends. While there were no numbers for 2025, OCBC appeared optimistic on ASEAN’s growth prospects and opportunities, which would be supportive of loans growth. Areas cited include global repositioning of supply chain and China +1 diversification, new economy (eg digital infrastructure) and transition financing. A pickup in China’s economic activities will also be positive, but may need time. NII sensitivity remains SGD4-5m/bp change in rates. On the global minimum tax, the impact is not expected to be material as its local tax rate is close to 15%.

• Capital management – more details to follow at the 4Q24 briefing. OCBC is comfortable with a CET-1 level of 14% and a level to work towards in the medium term (>3 years). It cited the need to balance between navigating uncertainties, growth opportunities and shareholder returns. Dividends (regular/special) and share buyback are seen as the main capital return tools but share buyback may not be the best option, currently with its P/BVof >1x.

• Forecasts unchanged but TP raised to SGD16.80 after updating our valuation parameters (2% ESG premium applied is unchanged).

Source: RHB Securities Research - 11 Nov 2024