Wealth, North Asia, Singapore All Set to Deliver

• OCBC (SGX:O39)’s strong, expectations beating 1Q21 performance was supported by mark-to-market and trading gains. These may be volatile going forward, but more stable sources such as wealth and transactional fees are also rising.
• An improved loan growth outlook with a stabilized NIMs environment should support further operational growth, especially given its gearing to North Asia and Singapore. OCBC's strong capital and allowances together with a better than expected asset quality backdrop could drive reserve write backs in 2H21, we believe.
• We raise our target price of OCBC to S$14.17. BUY.

Strong Underlying Operational Growth Prospects

• OCBC's non-interest income was up 70% y-o-y albeit from strong gearing to SG and North Asia (which contributes 65-75% of PPOP) should be an advantage as recovery takes hold.
• NIMs seem to have stabilized and rising loan growth should keep them supported, in our view.
• OCBC's management claims that demand for loans from large Singapore corporates and North Asia is strengthening. We have raised 2021-2023E PPOP by 3-7%.

Further Downside to Credit Costs

• Credit costs fell to 22bps from the 97bps peak in 2Q20. NPLs are flat at 1.5%. Management claims that in light of resurging COVID and see significant opportunities for upgrades here.
• Nevertheless, reserve write-backs, especially the significant management overlays established in 2020, are unlikely to be considered before 2H21 when there is better clarity of regional herd immunity, we believe. We lower 2021-23E credit costs by 1-7bps.

Raise OCBC's Target Price to S$14.17. Maintain BUY

• The improved outlook has us raising OCBC's 2021-23E earnings per Greater China strategy and wealth platform. As a result, we raise OCBC's target price to S$14.17 from S$12.74.
• Maintain BUY.

Source: Maybank Kim Eng Research - 7 May 2021