Phillip Capital downgraded OCBC to Accumulate from Buy, citing the share price performance and pointing to concerns about the growth outlook.
“OCBC growth may be more timid than expected. First quarter of 2018 earnings was boosted by an unsustainably low (or non-existent) allowance. This kept us from shaving our full-year 2018 profit estimates,” Phillip Capital said in a note on Tuesday. “Unless we enter into a more vibrant capital market, investment income will remain a drag on earnings.”
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. Allowances fell to S$12 million in the first quarter, from S$176 million in the fourth quarter.
Phillip Capital pointed to the allowances as a positive.
“After the horrible spike of S$1.3 billion of non-performing assets (NPA) last quarter, no surprise that asset quality is improving. New gross NPAs was S$297 million, the lowest in twelve quarters,” it said.
But it also pointed to negatives, including declines in trading and investment gains as well as a softer-than-expected net interest margin, which was hurt by lower NIMs in Indonesia and less improvement in Hong Kong.
Phillip Capital raised its target price for OCBC to S$14.90 from S$13.94 on a higher terminal growth rate assumption. An Accumulate rating indicates expectations of 5-20 percent returns.
OCBC shares ended Tuesday down 0.68 percent at S$13.08, extending its post-earnings losses.