North Asia and Regional Mega-trends Play

• OCBC Bank (SGX:O39) delivered a 9M21 PAT that was in-line with MKE. The Group is building a strong platform that is leveraged to several mega-trends: shifting North-South supply chains, rising Asian wealth and increasing demand for sustainable finance. Expanding investments here should provide a pathway to medium term growth, in our view.
• In the meantime, re-opening regional economies, potentially higher dividends and reserve write-backs are upside catalysts.
• We raise OCBC's target price and maintain BUY.

Growth Drivers Lining Up

• OCBC’s 3Q21 loans grew 6% y-o-y led by Singapore and Greater China. Non-interest income expanded 8% y-o-y supported by fees. These trends should be further supported as the Group increases investments in its North Asian franchise to capture trade, investment and wealth flows to AESAN.
• OCBC claims they are looking to increase Greater China IB & transaction banking capacity and deepening its Management bench there. It is doubling its North Asia wealth management RMs to 500 by 2023 to capture flows, while their partnership with Ping An opens up new distribution opportunities.
• Separately, OCBC has already surpassed its S$25bn by 2025 sustainable financing target with S$30bn for commitments. Expect increased commitments here going forward.

Asset Quality Supportive, But Tail-risks Remain

• NPLs remained steady at 1.5%, although Malaysia and Indonesia saw notable increases (+53% y-o-y). Fresh relief programs, especially in Malaysia, were to exclude write-backs in our forecasts for now.

Maintain BUY With Higher Target Price

• We have lowered OCBC's 2022-23E PAT forecast by 2-3% on higher opex expectations due to tight labour has peaked at 1.4x-1.5x. Maintain BUY.

Source: Maybank Kim Eng Research - 3 Nov 2021