CGS-CIMB downgraded OCBC to Hold from Add after first-quarter net profit came in slightly below its expectations, saying the results were a case of “‘good’ bank, ‘bad,’ insurance.”
Singapore’s second-largest bank after DBS and the last of the three to report earnings said its first-quarter net profit climbed 29 percent on-year to S$1.11 billion, with strong net interest income growth, higher wealth management income, lower allowances and increased contributions from overseas banking subsidiaries. The net interest margin rose 5 basis points to 1.67 percent, OCBC said. Allowances fell to S$12 million in the first quarter, from S$176 million in the fourth quarter.
CGS-CIMB noted that insurance arm Great Eastern Holdings (GEH) “disappointed” with a non-operating loss due to widening credit spreads and lower profit from the shareholders’ fund.
The “fall in OCBC’s share price reflects the need to deliver quarterly earnings (considering high multiples),” the note dated Monday said. “That said, we highlight that insurance earnings are backward-looking, and the change in GEH’s accounting helps to reflect underlying
But it added that considering the capital position and return on equity (ROE), it now views OCBC’s shares as fully valued. It cut its target price to S$14.00 from S$15.00 on a lower ROE assumption.
The stock fell 0.68 percent to S$13.08 on Tuesday, extending Monday’s 3.5 percent drop.
CGS-CIMB said its order of preference for Singapore bank shares remained DBS, UOB and then OCBC.