OCBC shares to see support from wealth arm, new CEO

• OCBC Bank (SGX: O39) share price gains 0.8% to S$10.405 per share
• DBS, CIMB, RHB and Maybank analysts are optimistic about the lender’s prospects under new leadership
• Robust momentum in wealth management will help earnings recover
• Trade OCBC, long or short, with an IG account today

Strong non-interest income

OCBC Bank’s stock rose 0.5% to trade at S$10.37 as of 13:10 SGT on Monday (1 February), on 2.3 million shares changing hands. In the morning, it had hit an intraday high of S$10.405, up 0.8% from the previous close.

The bank will report its fourth-quarter financial results on 24 February. CIMB expects a S$1 billion net profit, down 19% year-on-year, and a dividend of S$0.16 for the quarter.

DBS Group Research believes there is further room for OCBC’s share price to re-rate ahead of an earnings recovery in 2021. Analyst Lim Rui Wen last week reiterated ‘buy’ with a higher target price of S$11.90, up from S$11 previously.

‘While there may be further NIM (net interest margin) headwinds into 4Q20 and 1Q21 as OCBC’s loan book continues to reprice, its strong non-interest income franchise should provide some income support for 2021 amidst lower provisions expected,’ said the DBS analyst.

The lender’s active provisioning will prop up its share price, Lim added. ‘We expect OCBC to continue putting through provisions in 4Q20. OCBC’s strong NPA (non-performing assets) coverage of 109% and ongoing provisioning of S$1.8 billion as of 9M20 is likely to limit downside risks and provide share price support,’ she wrote.

Loan growth may stay muted at about 0.7% quarter-on-quarter, as corporates were holding back on investment decisions, CIMB said. The brokerage recommended ‘add’ on OCBC shares with a S$12.52 target.

RHB noted that although OCBC’s NIM is unlikely to recover in the near term, its healthy wealth management income and lower provisions should see 2021 earnings rebound by 20% year-on-year.

The management sees new financing opportunities in green financing, mergers and acquisitions (M&A), and supply chain transformation, said RHB, which maintained a ‘neutral’ call with a S$9.50 target.

Meanwhile, Maybank on Friday upgraded OCBC to ‘buy’ and gave a S$12.24 target price. The brokerage raised its outlook for Singapore banks to ‘positive’ on the back of improving growth prospects and potential dividend cap rollbacks.

Incoming group CEO Helen Wong

Helen Wong will succeed Samuel Tsien as the Singapore-based bank’s group chief executive officer come April 2021.

RHB analysts pointed out Wong used to be the CEO of HSBC in Greater China, and this experience ‘will be valuable for OCBC’s regional ambitions’.

In CIMB’s view, the leadership change ‘could spark renewed interest in the bank’s M&A ambitions’. Her appointment will also bring value to the regional franchise focus and enhance the long-term prospects of its share price, CIMB added.

DBS’ Lim said that once Wong assumes the role, investors will welcome updates on capital management, inorganic growth, and broader strategies.

How to trade OCBC with IG

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

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform 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 Corporation> 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