In a report released today, Glenn Thum from Phillip Securities downgraded OCBC to a Hold, with a price target of S$16.50.
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Glenn Thum’s rating is based on several factors influencing OCBC’s financial performance. The bank’s second-quarter earnings fell short of expectations due to ongoing compression in net interest margins, which led to a decrease in net interest income. Although there was a 7% growth in loans, it was overshadowed by a 28 basis point decline in net interest margin to 1.92%. Additionally, the interim dividend saw a 7% year-over-year reduction, although the dividend payout ratio remained stable at 50%.
Despite these challenges, OCBC experienced a 5% increase in non-interest income driven by fees and trading income, while maintaining stable expenses. The bank’s wealth management and trading income supported earnings, with wealth management fees rising significantly due to increased customer activity and a higher asset under management base. However, the unpredictability of OCBC’s dividend yield, which is dependent on earnings direction, adds an element of uncertainty. While OCBC has a strong capital position, indicated by the highest CET1 ratio among local banks, the overall outlook led to a downgrade to a Hold rating with a revised target price of S$16.50.
In another report released today, DBS also maintained a Hold rating on the stock with a S$15.80 price target.