OCBC upgraded to Buy by DBS amid expectations for higher dividends

OCBC branch in SingaporeOCBC branch in Singapore

DBS upgraded OCBC to Buy from Hold, pointing to its expectations the dividend may be increased and after its net interest margin rose.

OCBC Bank reported on Thursday its third quarter net profit rose 12 percent on-year to S$1.25 billion, beating some analysts’ forecasts, amid a 6 basis point rise in net interest margin (NIM) to 1.72 percent.

“OCBC’s NIM has been largely flattish in the last four quarters on slower loan repricing amid higher cost of funds. In the third quarter of 2018, OCBC started to reprice its mortgage portfolio and we expect to see the full impact in the fourth quarter of 2018,” DBS said in a note on Friday.

It also said OCBC released some excess U.S. dollars it had amassed in the second half of last year on expectations for stronger loan demand that didn’t eventuate.

In addition, DBS noted that OCBC’s CET1 ratio of 13.6 percent compares well with peers, adding that likely meant OCBC could pay higher dividends.

“This may remove the overhang on the stock price due to its lower dividend yield compared to peers and should be viewed as a positive catalyst,” DBS said. It noted OCBC’s current dividend yield was around 3.6 percent, compared with its peer’s around 5 percent.

It raised its target price to S$13.20 from S$12.40.

Shares of OCBC were up 2.51 percent at S$11.43 at 10:23 A.M. SGT.

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