Is OCBC eyeing parts of Citi’s Asia consumer business?

• OCBC Bank Ltd (SGX: O39) share price reaches S$11.97 per share
• Reuters said OCBC was one of the potential bidders for Citi’s consumer arm in Asia
• The Singapore-based lender will report its first-quarter results on 07 May 2021
• Buy and sell OCBC shares with an IG account

OCBC’s stock on higher ground

Shares of OCBC jumped 2.1% to close at S$11.97 on Thursday, on volume traded of nearly eight million shares.

Out of 22 analysts, 18 recommended ‘buy’ on OCBC shares while four said to ‘hold’. On average, they targeted the stock to hit S$13.01 in the next 12 months, indicating 8.7% potential upside.

In a Singapore market report, Maybank refreshed its top picks basket with a higher weightage towards value stocks, including DBS and OCBC, touting the ongoing rotation towards value and rising earnings expectations for such names.

Will OCBC try to buy some of Citi’s Asia businesses?

Reuters reported on Tuesday that OCBC and DBS were among the potential bidders for parts of Citigroup’s consumer business in Asia. Other possible interested buyers include MUFG and Standard Chartered.

The sale process will start in a couple of weeks, Reuters added. Citi would exit from its consumer franchises in 13 markets, 10 of which are in Asia.

The sale of Citi’s consumer banking portfolios and branches will only appeal to buyers that already have a presence in most of the markets, as the lender is not giving up its banking licences in those countries, Reuters reported.

Sanford C Bernstein analyst Kevin Kwek told The Business Times that for the lower end of the consumer segment, Singapore banks will likely ‘cherry pick those they can take on at low incremental cost’ in locations where they already have at least some scale. Malaysia and Indonesia could be potential markets for OCBC, Kwek added.

Meanwhile, Citi wrote that post-Covid, Singapore banks are likely to pursue bolt-on mergers and acquisitions (M&A), ‘if deals make sense in terms of price paid, business fit, synergies, and manageable integration costs’, and if there is a prospect of becoming EPS (earnings per share) accretive within a ‘reasonable time frame’.

What to expect for OCBC’s first-quarter results?

On 07 May 2021, OCBC will report its trading update for 1Q2021.

Maybank analyst Thilan Wickramasinghe expects to see signs of strengthening earnings momentum from sequential improvements in net interest margin, loan growth, wealth, and trading income.

Among the trio of Singapore lenders - OCBC, DBS Group Holdings (SGX: D05) and UOB (SGX: U11) - provisions should slow down further due to better-than-expected asset quality, but write-backs are unlikely in a backdrop of regional uncertainty, Wickramasinghe said.

OCBC is his top pick out of the three banks, as its wealth management and North Asia operations ‘have the strongest potential to deliver’, especially with a new CEO, Helen Wong, taking the helm.

Maybank has a ‘buy’ rating on OCBC shares and a S$12.74 target.

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