Forecasts maintained. OCBC’s 1Q13 core net profit of SGD696m (+5% QoQ, -12% YoY) was slightly below our expectations on lowerthan- expected NIMs, but in line with consensus. Given expectations of stable NIMs over the next few quarters though, our forecasts are maintained and our TP is raised to SGD11.30 (HOLD) from SGD10.50, pegging on a higher P/BV multiple of 1.5x (1.4x previously), taking valuations up to the long-term mean for the group and supported by ROEs of about 11.9% for 2013. HOLD – prefer DBS for its more attractive valuations 2013: PER 11.5x, P/BV 1.2x, ROAE: 10.6%, yield: 3.4%) and the strong growth in its non-traditional income channels.

1Q13 core net profit declined 12% YoY in light of lower trading gains and weaker investment performance from GE. Core net profit rose 5% QoQ, but was supported mainly by lower impairment losses and lower tax - operating profit declined 4% QoQ.

Positives include fairly healthy loan growth of 10% YoY, with growth rates of 12%, 14% and 18% for Singapore, Malaysia and Indonesia respectively. Fee income growth was up a robust 15% YoY with wealth management income surging 42% YoY. Asset quality improved further, with its NPL ratio slipping to 0.7% from 0.8% end-Dec 2012. Credit costs, as such, were very benign.

On the flip side, NIM contracted further to 1.64% in 1Q13 from 1.7% in 4Q12 due to a) ongoing mortgage repricing, b) limited gapping opportunities and c) increased interbank placements.

Guidance maintained. Management maintains its high single-digit loan growth target for the year, on expectations that regional loan growth will supplement an expected decline in domestic mortgage demand caused by recent property restrictions (new originations are still expected to come off 20-30%). NIMs, meanwhile, are expected to be stable at current levels over the next few quarters, as management continues to drive growth in key markets such as Malaysia and Indonesia, where NIMs are higher, to supplement any further compression domestically.

Source: Maybank Kim Eng Research - 02 May 2013