SGX-listed banks Oversea-Chinese Banking Corporation Limited, or OCBC, Bank (SG:O39) and United Overseas Bank (SG:U11) reported solid results for Q1 2023. Analysts remain bullish on the overall aspects of the stock. However, they also believe that the banks’ net interest margins (NIMs) may have already reached their highest point. Moving forward in 2023, these banks will have limited potential for expanding their NIMs.
Let’s take a look at the numbers.
Oversea-Chinese Banking Corporation Limited (OCBC Bank)
OCBC Bank is among the leading banks and one of the oldest financial institutions in Singapore.
Yesterday, the bank reported its first-quarter earnings for 2023 with an EPS of S$0.42 per share, beating analysts’ estimates of S$0.39 per share. The bank posted a record quarterly net profit of S$1.88 billion, against analysts’ expectations of S$1.74 billion. The profits were 39% higher than the previous year’s numbers.
The bank’s NIM increased to 2.30% from 1.55% in the same period last year, but it was slightly lower than the 2.31% recorded in the fourth quarter. The net interest income jumped by 56% to S$2.34 billion during the quarter as compared to a year ago. OCBC has also revised its full-year forecast for NIM from 2.1% to 2.2%.
Post-results, Maybank’s analyst Thilan Wickramasinghe reiterated his Hold rating on the stock yesterday. He predicts around 7% growth in the share price.
Today, analyst Weldon Sng from HSBC also confirmed his Buy rating on the stock at a price target of S$14.7, which implies an upside of 19.32% from the current level.
What is the Forecast for OCBC Shares?
According to TipRanks’ analyst consensus, O39 stock has a Moderate Buy rating backed by a total of 11 recommendations.
At an average target price of S$14.17, analysts are projecting a growth of 15% from the current level.
United Overseas Bank (UOB)
UOB is a multinational banking corporation headquartered in Singapore, offering a wide range of banking and financial planning products.
The bank published its quarterly earnings update for 2023 on April 27, with an EPS of S$0.90, in line with analysts’ expectations. UOB achieved a record core net profit of S$1.6 billion in the first quarter of 2023, reflecting a 74% increase compared to the same period last year. The acquisition of Citi’s consumer portfolio in 2022 has contributed to the growth of its retail business.
The bank’s net interest margin increased by 56 basis points, resulting in a 43% increase in net interest income. Overall, total income grew by 49% in the quarter, driven by higher trading and investment income, which offset the lower fees and commission income.
The management commented that the bank is in a favorable position to take advantage of Asia’s economic recovery this year, riding on its strong balance sheet and robust capital and liquidity positions.
Following the quarterly trading update, two analysts have reiterated their Buy ratings on the stock, while one analyst has recently initiated a Hold rating.
Analyst Glenn Thum from Phillip Securities maintained his Buy rating 9 days ago at a price target of S$35.70. This reflects almost 27% growth in the share price.
Eight days ago, HSBC analyst Sng reaffirmed his Buy rating on UOB stock also and predicted a 15.5% increase in the share price.
What is the Target Price for UOB?
The average price forecast for UOB is S$33.33, which is 17.7% higher than the current trading levels.
Overall U11 stock has a Moderate Buy rating on TipRanks based on six Buy and six Hold recommendations.
Conclusion
Moving forward, analysts and investors remain cautiously bullish on the banking sector in Singapore, considering the strict financial conditions that may potentially increase overall risks in the future.
