• Lower loan loss provision (only S$21m) was the key reason for OCBC’s 2Q18 earnings outperformance. Net profit of S$1.21bn is 4% above our expectations.
• Anticipated trends of weaker wealth management showed up but not alarming (-12% q-o-q, +5% y-o-y). Positive q-o-q net new money but offset by MTM of customer portfolio.
• Loan growth was softer than that of peers at +2.3% q-o-q. NIM was flat q-o-q at 1.67% but expect to expand gradually in 3Q18 from repricing of mortgage loans.
• Our GGM Target Price is unchanged at S$14.00 (LTG: 3%, ROE:11.8%), implies 1.4x CY18 P/BV vs. ROE of 11.4%. Given the upside of 23% in Target Price, we upgrade to ADD.
• Key catalysts could be OCBC’s ability to maintain the q-o-q earnings improvement. Our preferences among Singapore banks are UOB, OCBC and DBS, in that order.

Source: CGS-CIMB Research - 06 Aug 2018