OCBC recovery gains pace, shares bouncing back

• Oversea-Chinese Banking Corp (OCBC) (SGX: O39) share price hits S$11.195 per share, up 0.9%
• The stock has bounced back to its pre-Covid levels
• Analysts raised their target prices given the lender’s impending recovery
• There may be room for special or higher dividends in the future
• Trade OCBC shares, long or short, with an IG account

OCBC share price: What’s the latest?

OCBC’s stock was trading at S$11.11 as of 13:29 SGT on Tuesday, up 0.2% on the day, after 3.3 million shares changed hands. It advanced as much as 0.9% to S$11.195 in the morning.

Year-to-date, the counter has climbed some 10% from S$10.06 at end-2020. It is now trading near February 2020 levels, before the plunge to March 2020 lows amid pandemic fears.

Analysts’ average 12-month target price is about S$12.29, with 14 research teams recommending ‘buy’ on OCBC, seven rating it ‘hold’, and none with ‘sell’ calls, according to Bloomberg data.

Why did analysts raise their targets?

RHB’s research team has upgraded OCBC shares to a ‘buy’ call, and gave a higher target price of S$12.50, from S$9.50 previously.

OCBC’s operations and asset quality have seen sustained quarter-on-quarter improvements, underpinned by the reopening of regional economies, resulting in a more optimistic guidance on credit cost and loan growth, RHB wrote last Thursday (25 February).

The bank’s return on equity is also likely to post a ‘healthy’ recovery, while its robust capital provides room for higher dividends further ahead, RHB analysts said. ‘These, we believe, will support a share price re-rating,’ they added.

Maybank increased its target to S$12.74, up from S$12.24, while keeping its ‘buy’ rating intact. Analyst Thilan Wickramasinghe liked OCBC’s better-than-expected asset quality, and also anticipated its loan growth to regain momentum amid an improving operating environment.

‘Strong capital and provisioning buffers could provide upside surprise opportunities for write-backs, special dividends and/or higher payouts going forward,’ Wickramasinghe wrote.

Meanwhile, DBS Group analyst Lim Rui Wen remained conservative over OCBC’s income outlook into 2021 and 2022, as she believes the management will probably continue adopting strict cost discipline to manage its bottom-line.

Nonetheless, she raised her earnings estimates on better net interest margins and loan growth expectations, and maintained a ‘buy’ call with a S$12.50 target.

What could support a stronger recovery?

Fee income will remain a positive driver for OCBC, aided by the resumption in business activities and healthy demand for wealth management products, RHB analysts said.

The bank’s management expects a stronger recovery from the second half of 2021, given the improving consumer sentiment and business confidence. This would support a mid-single digit loan growth for the whole of 2021, faster than the 0.5% increase in 2020, RHB noted.

Maybank’s Wickramasinghe said OCBC stands to benefit from North Asian recovery and North-South trade flows. ‘Its incoming CEO’s track record in China should also be complementary.’

Lim expects the bank’s active provisioning to support its share price and limit downside risks. Excess capital can also be deployed for growth, or returned to shareholders via special dividends, she added.

How to trade OCBC stocks with IG

Are you feeling bullish or bearish on OCBC's stocks?

Either way you can buy (long) or sell (short) the asset on IG's industry-leading trading platform, by investing in the share directly, in a few easy steps:

1. Create a live or demo IG Trading Account, or log in to your existing account
2. Enter <Oversea-Chinese Banking Corp> in the search bar and select the instrument
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade