OCBC : 2Q09 Results Management Briefing Highlights

Wednesday, August 12, 2009

OCBC now at 1.6x P/B — A relatively muted price response to a better than consensus 2Q result suggests that the recent price rally had largely discounted a good result, with valuations already close to mid-cycle levels. Revenues were largely capital markets driven, while net interest income dipped on limited loan opportunities and softer margins. Management explained that the qoq rise in NPLs was due to some lumpy accounts, but that generally the new NPL trend is slowing. Rising equity markets lifted AFS reserves by S$580m (S$0.18/share)

Commentary — New NPL inflows have slowed across all key markets. The rise in 2Q NPLs, especially in Singapore, were due to some lumpy loans that were classified as substandard for early recognition but management do not anticipate losses from them. Loan growth is coming from mortgages and SMEs. Loan spreads may have peaked, but the near-term margin squeeze is from lower gapping profits. Management believes that the S$250m provision against the "GreatLink Choice" redemption will prove to be adequate.

2Q09 profit S$466m, +26% qoq — (1Q09 recurring: S$370m, less one-time life profit of S$175m net of tax). 2Q09 NII S$710m -4% qoq: Loans -1.5% qoq, NIM 229bps (1Q: 242bps). Loan-to-deposit spread 2.81% (1Q: 2.79%), LDR 82% (1Q: 87%). Non-II 2Q S$494m (1Q: S$432m excluding one-time profit S$175m) +14% qoq, fees S$194m (+25% qoq), insurance earnings S$157m (1Q: S$122m), other income S$143m (1Q: S$155m) on lower FX/dealing income. Costs S$450m, +9% qoq, on higher insurance-related costs. Provisions S$104m, 53bps of loans (1Q: S$197m, 99bps). NPL ratio 2.1%, coverage 97%. Tier-1 ratio 15.4%. 2Q09 annualized EPS S$0.57 (1Q recurring c ash EPS S$0.46), BPS S$4.94 (1Q: S$4.75).


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