OCBC recently organised an Analysts’ Day on Monday, 7 September 2015, with the focus on Wealth Management (WM) and OCBC’s Digital Banking Strategy. Macquarie Equities research (MER) released a research report the next day, stating its 12-month price target for OCBC to be $10.50 (+16.8% from yesterday’s close). Read more for more excerpts from the research report….
 
 
OCBC has a sensible Wealth and Digital Banking strategy and OCBC is ahead of peers in MER’s view. That said the positive earnings impact – from revenues and costs - will only come over the longer term in MER’s view. MER expects little revenue impact over the near-term and some cost efficiency improvements over the mid-term.
 
Impact
MER’s key takeaways – The event felt more like meeting with Apple or Google and not like a typical meeting with a bank. The emphasis was very much on “improving customer experience”, “innovation” and “differentiation”. Bottom line is that OCBC is ahead of the curve on (i) investments into data analytics and product capabilities (largely completed) (ii) building out Digital Banking (albeit investments are still ongoing) and (iii) cultural change away from a ‘product based approach’ towards a ‘solution or goal based approach’.
 
Strong Wealth Management franchise – WM continues to be a growth story for OCBC and the bank should benefit from positive operating leverage. OCBC has already completed most of the major investments into WM product capabilities and into the wealth channels (Bank of Singapore, OCBC Premier Banking, OCBC Bank, OCBC Securities) we think. In addition, OCBC is looking to do more digital banking particularly for non private bank customers, which should improve cost efficiency over the mid term.
 
Sensible Digital Banking Strategy – Every bank claims to be ‘client centric’, ‘differentiated’ and ‘innovative”. For OCBC, these statements are credible and OCBC gave two good examples of new digital banking products: ‘OCBC Pay Anyone’ and ‘OCBC Money In$ights’. Since OCBC is not charging for most of its digital banking products, there will be hardly any revenue impact in the near term MER thinks. The longer term benefit will come in the form of (i) better customer experience (ie higher sales volumes), (ii) productivity and efficiency improvements (ie lower costs) and (iii) higher customer loyalty (ie sticky customer relationships and CASA deposit acquisition). While OCBC keeps investing in Digital Banking, investment in data analytics and product capabilities look largely complete. UOB has to catch up on all of that MER thinks.
 
Price catalyst
12-month price target: S$10.50 based on a Price to Book methodology.
 
Catalyst: value realisation on Wing Hang Bank, impact of current market volatility and capital
 
MER’s action and recommendation
MER has a Neutral rating on OCBC – target price S$10.50.

Source: Macquarie Research - 9 Sep 2015