OCBC shares get boost from ‘resilient’ earnings

• OCBC Bank (SGX: O39) share price hits S$10.89 a share, up 2.5%
• Its bottom-line outperformed market expectations
• A final dividend of S$0.159 was proposed
• The bank’s CEO said OCBC will remain watchful of headwinds
• Trade OCBC shares, long or short, with an IG account

Better-than-expected Q4 showing

For the fourth quarter of 2020, net profit for OCBC fell 9% year-on-year to S$1.13 billion, beating the average estimate of S$955.9 million of four analysts polled by Refinitiv.

CIMB analysts also said the earnings exceeded their estimates by 13%, mainly due to much lower taxes. There was a one-off positive tax impact arising from the finalisation of prior years’ tax assessments at Great Eastern Holdings (SGX: G07), CIMB said.

Net interest margin (NIM), a key measure of a bank’s profitability, narrowed to 1.56% for 2020, from 1.77% in the year prior. However, in the fourth quarter, NIM rose 2 basis points quarter-on-quarter, exceeding market expectations of a compression, CIMB said.

Full-year net profit shrank 26% from 2019’s record. This was largely due to a decline in net interest margin as a result of a sharp drop in market interest rates, as well as higher expected credit loss allowances to buffer against the deteriorating macroeconomic conditions.

Nonetheless, OCBC group CEO Samuel Tsien said the bank put in a ‘resilient’ performance amid the crisis.

Wealth management fees climbed 5% last year to a new high, driven by strong customer activities in a low interest-rate environment.

In line with the Monetary Authority of Singapore’s cap on banks’ dividends - at 60% of 2019’s total levels - OCBC has proposed a final dividend of S$0.159 per share for the full year.

What’s next for OCBC?

Shares of Singapore’s second-biggest lender advanced 2.5% to S$10.89 as of 15:13 SGT on Wednesday, with 9.6 million shares changing hands.

Out of 21 research teams, 11 recommended ‘buy’ on the stock, nine said ‘hold’, while one had a ‘sell’ call. Their average 12-month target price was S$11.44, according to Bloomberg data.

On Wednesday, Morgan Stanley kept its ‘equal-weight’ rating and S$11.48 target, Bernstein maintained ‘outperform’ with a S$11.50 target, while CIMB reiterated ‘add’ and a S$12.52 target.

Tsien, who will be succeeded by Helen Wong this April, said: ‘While economic conditions have started to show signs of stabilisation and we are seeing increased activities in some pockets of the economy, the recovery is not yet broad-based.’

While the bank will remain watchful of the headwinds, it is also looking for opportunities to ‘capitalise on signs of sectorial recovery’, he added.

Reuters reported that analysts expect Singapore banks in general to repost an earnings rebound in 2021, lifted by stronger wealth businesses and improved economic prospects.

How to trade OCBC stocks with IG

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