SINGAPORE (Feb 14): Lim & Tan Securities is recommending that investors take profit on OCBC, following the 15% run-up in its share price after November.
At current levels, Lim & Tan says that the stock is trading at 12 times earnings, and at 1.14 times its book value. Given that it is trading at parity to the group’s revalued net asset value of $10.03, the brokerage prefers to sell the stock now and buy the stock again when it is closed to its book value of $8.49 per share.
For 4QFY16, OCBC’s earnings fell 18% to $789 million, which the brokerage said was 9% lower than analysts’ estimates. The disappointing results were fuelled by the 57% surge in provisions for bad debts to $305 million.
(See also: OCBC reports 18% fall in 4Q earnings to $789 mil)
At the same time, net interest income had fallen 7% to $1.25 billion on the back of falling customer loan yields, while non-interest income fell 4% to $926 million on lower net trading income and life assurance profit.
Non-performing assets rose from $2.04 billion in FY15 to the current $2.89 billion, of which $2.29 billion were new NPAs. The increase in NPAs came from the corporate accounts in the oil and gas support services sector, which pushed the non-performing loan ratio up from 0.9% to 1.3%.
OCBC’s management also added that its operating environment in 2016 continued to be challenging and was monitoring its portfolio for early signs of weakness.
On the other hand, Lim & Tan noted that OCBC’s management had classified related accounts for close monitoring and had actively aided them in rescheduling and restructuring their loans. As such, total net allowances for loans and other assets were higher at $726 million, compared to the $488 million in FY15. Net specific allowances for loans were also higher at $484 million, up from $232 million in FY15, for accounts in the oil and gas support services sector.
The bank also remains well capitalised with customer deposits up 6% to $261 billion, or 80% of its funding composition. Customer loans increased 5% to $220 billion in the same period, and OCBC’s loan-to-deposit ratio was 82.9%.
Its average SGD and all currency liquidity coverage ratios are also above their regulatory ratios, at 284% and 145% respectively. As of end December, its Common Equity Tier 1 capital adequacy ratio (CAR) was at 14.7% while its Tier 1 CAR was 15.1% and its Total CAR was 17.1%.
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Furthermore, OCBC has proposed a final dividend of 18 cents, or 43% of its earnings. Including the interim dividend of 18 cents, the group’s total dividend was unchanged from the 36 cents in FY15.
As at 3.29pm, shares of OCBC are trading 33 cents lower at $9.42.
