Beat estimates; HOLD maintained. 3Q13 results of SGD759m (+27% Q-Q) were lifted by larger contribution from Great Eastern (GE), which benefited from mark-to-market (MTM) gains as credit and swap spreads narrowed amid a recovery in the financial markets. The underlying trend was mixed with a 14% jump in non-performing loans (NPLs) being a major surprise. The overall result undertone was consistent with DBS’. Maintain forecasts and SGD10.90 TP (1.4x FY14 P/BV).

Loan growth (+2% QoQ, 16% YoY) offsets NIM compression. Similar to DBS, trade loans remained one of the key loan drivers for OCBC. Loan growth was weaker than DBS’, as its domestic loans fell 1.7% QoQ on weaker corporate demand. In local currency terms, loan growth in Malaysia and Indonesia was robust at +4% and +8% QoQ respectively. With FY13 loan growth expected at 15%, management is guiding for a high single-digit in 2014. 3Q13 NIM contracted 1bp QoQ, or 12bp YoY to 1.63% due to persistently low interest rate environment and the re-pricing of existing SGD housing loans.

A 14% jump in absolute NPLs, pushes NPL ratio up by 10bp. That said, the NPL ratio remains enviably low at 0.8%, the best among the three Singapore banks. Management attributed this to: (a) several large corporate accounts (one to the steel industry) in Malaysia, (b) a loan to a sea transportation company in China (c) an SGD18m increase in housing NPLs. This suggests it was not due to an overall weakness in the bank’s loan book. Management continues to expect the low credit charges (specific provisions as a proportion of average loans) environment to persist into 2014.

Greater China exposure. Management feels that exposure to HK’s consumer space is not a necessity and that it already has a corporate presence in HK and private wealth management through Bank of Singapore. As such, if OCBC acquires any HK bank, the focus is to broaden its presence in China

Source: Maybank Kim Eng Research - 4 Nov 2013