OCBC fell for a third straight day yesterday, underperforming peers DBS and UOB which managed to break their losing streak for the week by finishing up 0.3%.
 
Earlier this month, Macquarie Equities Research (MER) had reiterated their 12-month target price of $10.10 for OCBC after its result announcement. Below are some excerpts from the MER report released on 1 November.

Event
OCBC’s third quarter (3Q) net profit of $759mn, a 59% drop from the same period last year, had come in 10% ahead of MER’s forecast. While the figure was likely a consensus beat, the main driver was subsidiary Great Eastern’s strong 3Q results that reported on 29 October and thus shouldn’t come as a surprise to the market.

Impact
Net interest margins (NIM) fell by 0.01% quarter-on-quarter (QoQ), and 0.12% year-on-year (YoY) after 0.01% QoQ declines in both asset yields and funding costs. This is in line with DBS’s NIM result. Loan growth was slightly slower however, at 2% QoQ / 16% YoY and just 1% ahead of MER’s forecast. By sector, mortgages were the key QoQ loan growth driver, although SGD-denominated loans were flat QoQ.
 
Credit costs of S$94m were up significantly in relative terms but only because of the extremely low base. Specific provisioning of S$42m was still extremely low at 10bps annualized. Non-performing loans (NPL) remain extremely low at 0.8% at the Group level, with marginal increases in NPLs from Greater China and Malaysia.

MER’s outlook for OCBC
Given that OCBC had delivered 78% of MER’s full-year net income forecast and 77% of their pre-provisioning operating profit forecast, MER retained their ‘Neutral’ rating on the stock and their 12-month target price of $10.10 on the stock. MER thinks that it will be difficult for the stock to break out given the uninspiring operational outlook and media chatter (eg, Bloomberg) of M&A in Hong Kong
 

Source: Macquarie Research - 21 Nov 2013