• Stay NEUTRAL and SGD16.80 TP, 1% downside and 5% FY25F yield. We recently met OCBC Bank for an update. For its upcoming 4Q24 results (out on 26 Feb), we learnt that broad trends should be in line with guidance. While our and consensus FY24F PATMI imply 4Q24 PATMI could drop by double digits QoQ (single-digit YoY growth), we think investors will instead be focusing on the upcoming dividend, OCBC's capital management plans, rates sensitivity, and asset quality outlook, among others.
• Expecting weaker 4Q24 earnings sequentially. Our 2024F PATMI of SGD7.54bn (2% below consensus) implies 4Q24 PATMI could see mid-teens contraction QoQ while YoY, likely a low single digit growth. The QoQ decline is premised on a combination of: i) Seasonality, where eg non-II tends to be weaker while opex could tick up; and ii) impact from US Federal Funds Rate (FFR) cuts in 4Q24 should start to be felt.
• Asset growth to help cushion NIM pressure. We understand that loans growth should be within the low single digit guidance with mortgage demand still healthy thanks to improved home sales and refinancing activities while non-trade corporate loans were decent. Trade loans, though, remains soft. NIM will likely come under pressure sequentially and YoY due to the FFR cuts. 3Q/9M24 NIM stood at 2.18% and 2.22% - management had previously highlighted that 3Q24 exit NIM was 2.16%. That said, OCBC expects full-year NIM to meet the guided 2.20% mark.
• Non-II expected to soften QoQ on seasonality and high base in 3Q24. 4Q wealth activities tend to be seasonally slower in 4Q and we expect a similar trend for 4Q24. Also, OCBC enjoyed an exceptional 3Q24 for other non-II, lifted by both customer and non-customer flows. This should moderate in 4Q as well. Overall, 4Q non-II is unlikely to excite and with that, we project 4Q24 revenue to slip by double digit QoQ (flattish YoY) and dampen bottomline.
• Asset quality - still watching the CRE space. Management remains watchful on the commercial real estate (CRE) space in Hong Kong and second-tier players as economic activities there have been subdued. If need be, OCBC is willing to downgrade accounts and take on the necessary specific provisions as seen in the previous quarter. 9M24 credit cost (annualised) of 17bps was trending below the 20-25bps guidance, and while there is room for credit cost to rise, we are not overly concerned on OCBC's asset quality, especially when taking into consideration its non-performing assets coverage of 148%.
• We expect a final DPS of 45 SG cents (4Q23: 42 SG cents), which would bring FY24F DPS to 89 SG cents (5.2% yield or 53% payout vs FY23: 82 SG cents or 52.5% payout). That said, we do not discount the payout exceeding expectations on record profits, and given its robust CET-1 ratio (3Q24: 15.6%), where we estimate OCBC may be sitting on excess capital of >SGD4bn. No changes to TP and earnings forecasts, pending the 4Q24 results. Our TP includes a 2% ESG premium.

Source: RHB Research - 23 Jan 2025