Maybank KE: OCBC’s earnings may see ‘significant volatility’

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OCBC’s first-quarter earnings beat forecasts, but much of the gains were on market-linked sources, suggesting  potential volatility to results ahead, Maybank KimEng said in a note last week.

Earlier this month, OCBC reported its first quarter net profit rose 11 percent on-year to S$1.23 billion amid strong income growth across the banking, wealth management and insurance franchise.

The brokerage estimated around 35 percent of OCBC’s income for the quarter was from market-linked sources.

“These are likely to see significant volatility as macro conditions change from mark-to-market requirements,” Maybank KimEng said. “We have yet to see any structural improvements in more visible sources of income, such as fees from overseas trade flows, strengthening SME franchise or new revenue streams from technology.”

In addition, the brokerage said OCBC has a “big wallet,” with around S$5.1 billion in excess capital.

“This is a sizable war-chest, which management has not ruled out for ‘offensive’ uses. But a large acquisition will result in significant execution risks and earnings uncertainty, in our view,” the note said.

Based on stronger mark-to-market income in the first quarter and the current macro outlook, the brokerage increased its 2019-21 earnings forecasts for OCBC by 1 percent to 3 percent, and raised its target price to S$11.07 from S$10.73.

But it kept a Hold call.

The stock ended Friday down 0.62 percent at S$11.15. Singapore’s market were closed for a public holiday on Monday.


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