• U/G to BUY from Neutral, new SGD19.10 TP from MYR16.80, 11% upside. 4Q24 results were in line. More importantly, OCBC Bank unveiled a 2-year SGD2.5bn capital return plan via special dividends and share buybacks. This is a much welcome addition to our investment thesis for the stock - a good defensive option given solid asset quality and capital levels, and connectivity play, where it is well poised to benefit from supply chain shifts.
• 4Q24 results in line. Reported earnings of SGD1.7bn (-15% QoQ, +4% YoY) brought FY24 PATMI to SGD7.6bn (+8% YoY) - at 99-101% of our and Street forecasts. FY24 reported ROE stood at 13.7%, slightly below the >14% target but flat YoY. The fully phased-in CET-1 ratio under Basel III reforms was at 15.3% (3Q24: 15.6%). A final DPS of SGD0.41 together with a special DPS of SGD0.16 were declared (4Q23: SGD0.42) - ahead of our SGD0.43 expectations. This brought total 2024 DPS to SGD1.01 (2023: SGD0.82) and translates to a payout of 60% (FY23: 53%).
• Results highlights. PATMI, as expected, fell QoQ on seasonally lower non-II and higher opex, but credit cost also ticked up QoQ. Key highlights include: i) Strong asset growth, with loans up 5% QoQ (+8% YoY) as OCBC managed to book in some trade loans during the quarter; ii) NIM fell 3bps QoQ due to lower benchmark rates, but NII was flat due to asset growth; and iii) NPL ticked up 1% QoQ due to a downgrade of a mid-sized Hong Kong commercial real estate (CRE) exposure. This also impacted allowances for impaired assets but, overall, LLC was still at a very solid 143%.
• 2025 outlook. OCBC targets the following for 2025: i) NIM of 2% (FY24: 2.20%), ii) mid-single-digit loan growth (FY24: +8%), iii) CIR of low 40% (FY24: 39.7%), iv) CoC of 20-25bps (FY24: 19bps), and v) dividend payout of 60% (50% ordinary + 10% special) plus share buybacks over two years. Its NIM guidance assumes three US Federal Funds Rate (FFR) cuts and deploying surplus liquidity into high quality, lower-yielding assets, among others. NIM sensitivity was guided for SGD4-5m/bp change, but there could be upside to the overall NIM guidance if FFR cuts pan out less severe than guided. On asset quality, management does not see any systemic risk with its CRE exposure. Overall LTV is 50%, with 67% of the exposure to large corporates, while mid-corps make up 25%.
• Capital management. OCBC announced a SGD2.5bn capital distribution plan to shareholders over a 2-year period. Based on an optimal CET-1 level of 14%, it plans to return SGD1.5bn in special dividends for FY24 and FY25, and SGD1bn via share buybacks. Together with the ordinary DPS, investors can expect total dividend payouts of 60% in FY24 and FY25. OCBC said this will be monitored, and there is potential upside to returns if capital generation/growth opportunities pan out stronger/weaker than expected. FY25-26F PATMI raised by 1% and 1% post results. We lift our FY25F DPS to SGD1.01 from SGD0.89 after factoring in the capital distribution DPS. TP rises to SGD19.10 (bakes in a 2% discount on its 3.2 ESG score) on lower COE.

Source: RHB Research - 27 Feb 2025