Don’t bank on an OCBC special dividend after Malaysia insurance stake sale: UOB KH

OCBC ATMs in SingaporeOCBC ATMs in Singapore

OCBC could recognise a divestment gain of S$608 million in the fourth quarter from the likely sale of a stake in its Malaysia insurance business, but don’t count on a bumper special dividend, UOB KayHian said.

The brokerage noted that OCBC didn’t declare a special dividend when it recognised a S$1.126 billion gain from selling its F&N and APB stakes in 2012.

Management has also “repeatedly emphasised” it sees opportunities for organic growth, UOB KayHian noted in a note on Thursday.

“Thus, OCBC is likely to retain and re-invest the bulk of the proceeds from the divestment to its core commercial banking businesses. Any special dividend, if declared, would be quite modest in size,” UOB KayHian said. It estimated the maximum special dividend at 18 Singapore cents, assuming OCBC returns all of the divestment proceeds to shareholders.

Whither the regular dividend?

The brokerage also noted that it already expected OCBC to increase its dividend payouts. It said it expects the bank could increase its regular dividends every six months from the current 19 Singapore cents; its base-case was for a total dividend of 44 Singapore cents per annum, for a payout ratio of 45  percent and a dividend yield of 3.3 percent.

The bank must sell a 30 percent stake in Great Eastern Life Assurance (Malaysia), or GELM, UOB KayHian noted.

OCBC’s around 88 percent-owned Great Eastern Holdings needs to reduce its ownership of GELM from 100 percent to 70 percent to comply with foreign-ownership limits in Malaysia, UOB KayHian noted, adding the 30 percent stake could be sold through an initial public offering (IPO) or a trade sale.

‘Amazing life insurance franchise’

The plan must be submitted to Malaysia’s central bank, Bank Negara, by June, with the plan likely executed in the second half of the year, the brokerage said.

GELM is “an amazing life insurance franchise,” UOB KayHian said, noting it is Malaysia’s second-largest conventional life insurance player, with an estimated 23 percent market share in Malaysia and achieved return on equity (ROE) of 41-47 percent over the past five years.

UOB KayHian estimated the 30 percent stake in GELM is worth S$760 million, applying a 20 percent discount for the IPO, and it expected OCBC would recognise a divestment gain of S$608 million in the fourth quarter.

The brokerage tweaked its target to S$14.95 from S$14.90, keeping a Buy call.

The stock ended Thursday up 0.76 percent at S$13.31.

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