Expect  QoQ  earnings  decline.  OCBC  will  release  its  results  on  2  Aug  2012 before trading  hours. We are forecasting 2Q12  net profit of  S$630m, down from 1Q12's  S$832m.  We  do  not  expect  the  (a)  exceptionally  strong  1Q12  life assurance  income  (>4x  that  of  4Q11)  and  (b)  robust  1Q12  net  trading  income (double  the  historical  average)  to  be  sustained  in  2Q12.    Loan  growth  may  also be weak, following 1Q12's sequential loan contraction. We see no catalyst driving OCBC's  share  price,  and  maintain  our  NEUTRAL  recommendation  with  TP  of S$8.30, pegged to 1.3x FY12 P/B.    

Loan  softness  likely.    MAS  data  showed  Singapore  systemic  loan  growth  of 0.6%  MoM  for  Apr  and  2.2%  for  May.    We  do  not  believe  the  May  loan  growth strength  will  persist  and  expect  a  slower  MoM  loan  growth  pace  for  Jun.    In  the case of OCBC, 1Q12 loan contracted 0.4% QoQ, due to a 6.8% QoQ contraction in general commerce loans. 1Q12 OCBC USD loans contracted 5.2% QoQ, due to  a  fall  in  USD  loans  to  Chinese  corporates  for  trade  financing. We  believe  the recent easing of monetary policy by People's Bank of China, evident from reserve requirement ratio cut starting from Dec 11 and lowering of policy rates by PBOC (in  Jun  and  Jul  12)  could  lead  to  further  weakness  in  lending  to  Chinese corporates. This may dampen OCBC's 2Q12 loan growth.

Weak  equities  market  but  strong  government  bonds'  performance.    1Q12 life assurance income of S$221m was more than 4x of 4Q11's S$51m, driven by improvement in GEH's Non-participating fund.  The STI level of 3010 at end-Mar 12  was  14%  higher  QoQ,  which  is  a  contributing  factor  to  1Q12's  strong  life assurance income. However, the STI level of 2878 at end-Jun 12 was down 4% QoQ.  On  a  positive  note,  the  fall  in  10-year  Singapore  government  bond  yields (by 23 bps QoQ to end-Jun 12's 1.59%) has led to good gains from government bonds. Overall, we expect a sequentially weaker 2Q12 life assurance income.