OCBC share price: 3 key considerations ahead of Q1 earnings

When will OCBC’s Q1 2020 financial results be released?

Singapore bank Oversea-Chinese Banking Corp (OCBC) is set to announce its first quarter 2020 earnings for the three months ended 31 March 2020, on Friday 08 May.

OCBC is the second largest financial services group in Southeast Asia by assets and one of the world’s most highly-rated banks, with an Aa1 rating from Moody’s. Its key markets are Singapore, Malaysia, Indonesia and Greater China. It operates more than 540 branches and representative offices in 19 countries and regions.

Here are three things that investors should know ahead of the upcoming financial report.

1. OCBC Group CEO: revenue to be reduced by 2% in 2020

Group CEO Samuel Tsien had warned over last quarter’s earnings call that the operating environment will ‘remain challenging’ for the rest of its 2020 fiscal year, with the global economic outlook ‘expected to be weaker than originally expected’.

As such, he estimated that the group's annual revenue for this year might be reduced by 2% thanks to the coronavirus crisis. He also hinted that loan growth could be lower this year, with China and Hong Kong accounting for 6% of its total loan client base.

‘We are watchful of the impact to our business and customers from the continuing trade tensions, heightened geo-political risks and the Covid-19 outbreak, and will extend support to customers to help them overcome the market challenges,’ he further noted in the Q4 report, adding that he hopes for the virus crisis to be contained by June 2020.

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2. OCBC’s earnings beat analyst estimates in the last quarter of 2019

The bank recorded a net profit of S$4.87 billion in FY 2019, 8% higher than the S$4.49 billion achieved in 2018.

For the fourth quarter of 2019, OCBC beat Refinitiv analysts' average net profit estimates of S$1.132 billion, hitting a core net profit of S$1.24 billion for the period, an increase of 34% from S$926 million a year ago.

Earnings for the remaining quarters of 2019 were also on par with Refinitiv analyst estimates.

For the upcoming Q1 FY2020 report, Refinitiv analysts have given a S$941 million consensus prediction for net profit and an earnings per share estimate of S$0.214. These are 23.6% and 24.1% lower respectively than estimates for the same quarter one year prior.

In terms of share price, OCBC shares are down 19.1% year-to-date, with most of the drop having occurred between February and March 2020 during the peak of the coronavirus outbreak.

The average share price target for OCBC based on five analyst estimates is S$21.37 per share. Of these, four have rated the OCBC stock a ‘hold’ and one rated it ‘accumulate’.

As at 17:15 SGT on 05 May 2020, OCBC shares are trading at S$8.91 per share, based on IG trading data.

3. OCBC not planning any layoffs for now

Tsien also said in a March 2020 statement that the company, which employed over 30,000 people as of December 2019, is not planning any layoffs this year.

‘We do not plan to have retrenchment exercise arising from this outbreak,’ he wrote in an employee note, adding that the company has ‘strong levels of capital, funding and liquidity to guide us through these uncertain times’.

The bank has also temporarily closed 22 of its Singapore branches since the Singapore government introduced its so-called ‘circuit-breaker’ measure on 09 April 2020.

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