PPOP Is Poised to Take-off. But NPL Risks Remain

• OCBC (SGX:O39) delivered a 1H21 PAT that was ahead of expectations.
• Operationally, there are early signs of inflection with stabilising margins, rising loan growth and increasing fee momentum. Provisions are falling overall, but pockets of stress exists in its ASEAN operations due to rising COVID levels.
• Nevertheless, OCBC’s gearing towards North Asia and Singapore together with a rising share in sustainability finance (50% of 2Q21 lending was green), gives it a strong platform for medium term growth, while also providing dividend upside risks.
• We raise our target price of OCBC to S$14.30. Maintain BUY.

Operations at Inflection Point

• 2Q21 PPOP was lower 2% y-o-y largely as a function of weaker trading income. NIMs have stabilised. While insurance income has fallen 10% y-o-y, this is better than our expectations of weaker mark-to-market gains in the rest of 2021E.
• Wealth management fees are 11% higher y-o-y. We expect this momentum to continue going forward as economic recovery spurs wealth demand.
• Overall, we believe OCBC is well placed to deliver 12% y-o-y PPOP growth in 2021E following a 9% y-o-y fall in 2020.

North Asia Delivering. Risks in ASEAN

• OCBC's overall loan growth was underwhelming at 104% giving ample cushion.
• Nevertheless, diverging performance between ASEAN (17% of loans) and the rest (83%) is a key risk to watch.

Higher Dividend Outlook. Maintain BUY on OCBC

• A better insurance and North Asian outlook has us raising 2021-23E earnings per share forecast by 1-3%. Following the expiry of dividend caps, OCBC has reverted to an interim dividend of S$0.25 – which is the same as 1H19.

• OCBC has a progressive multistage DDM-based (COE 8.4%, 3% terminal) target price for OCBC has been raised to S$14.30. Maintain BUY.

Source: Maybank Kim Eng Research - 4 Aug 2021