Lower trading and insurance incomes compensated by well-managed staff costs and fall in specific allowances.

Notable trends: Stable NIM, robust loan growth, strong credit quality, ample liquidity (80% SGD LDR).

Purchase of WHB remains a concern. Retain HOLD with TP of SGD9.08 (previously SGD9.16), based on 1.24x FY14E P/BV.

Met our expectations but ahead of consensus

OCBC’s 4Q13 core PATMI of SGD715m (-5.8% QoQ, +7.8% YoY) was in line with our forecast of SGD720m but outstripped consensus estimate of SGD610m. The difference could be traced to: 1) lower-than-expected 4Q13 overhead expenses (+4.7% QoQ, -1.5% YoY) on well-contained staff costs (-4.2% QoQ, -4.4% YoY), and 2) lower-than-expected specific allowances. These two factors more than made up for the decline in trading and insurance incomes. We fine tune after FY14-16 by a marginal 1% after incorporating FY13 data.

Key operating trends remain steadfast

Net interest margin (NIM) improved marginally to 1.64% (+1bp QoQ, unchanged YoY) in 4Q13, having stayed stable over the past four quarters. Loan growth was stronger than expected (+4.8% QoQ, +17.9% YoY), fuelled by higher trade finance (+20% QoQ, +59.4% YoY). Asset quality stayed resilient. Non-performing assets (NPAs) fell 2.5% QoQ to SGD1.3b in 4Q13 after an unexpected 14.1% QoQ hike in NPLs in 3Q13. Net new NPL formation slowed down in 4Q13. Reiterate HOLD; WHB purchase an overhang

We reiterate our HOLD call on OCBC with a TP of SGD9.08, based on 1.24x FY14E P/BV. The proposed purchase of Wing Hang Bank (WHB) remains a share price overhang. While valuation appears cheap, we believe share price weakness will persist, with downside bias, amid uncertainty over the WHB deal pricing and funding structure. For exposure, DBS remains our preferred pick. Key risk to our view: OCBC walks away from the purchase.

Source: Maybank Kim Eng Research - 17 Feb 2014