NIM above expectations
- OCBC’s net profit of S$1.48bn in 2Q22 was 10%/11% above our/consensus estimates as NIM grew 16bp on NII increase of 13% qoq.
- Asset yield turned out to be stronger and likely more sensitive towards the rate rise this time round, in our view.
- Guidance: positive on FY22 outlook on the back of NII growth from rising rates, loan growth at mid-single-digit %, credit cost at low end of 20-25bp.
2Q22 beat estimates due to stronger NII
? OCBC recorded net profit of S$1.48bn in 2Q22 (+9% qoq, +28% yoy). This was 10%/11% above our/consensus estimates. 1H22 interim DPS of S$0.28 was declared (1H21: S$0.25).
? The beat was mainly the result of stronger-than-expected NIM growth of 16bp to 1.71% vs. our expected 1.64%. NII grew accordingly (+13% qoq). Average asset yields rose 11bp yoy to 2.12% in 1H22 (1H21: 2.01%), outpacing average funding cost growth of 5bp yoy to 0.52% in 1H22 (1H21: 0.47%).
? Non-II held steady in 2Q22 (+3% qoq, +6% yoy) as stronger insurance income (+28% qoq, +67% yoy), higher operating profit and MTM gains in Great Eastern’s insurance funds from higher rates and trading income offset some weakness from wealth management fees (-16% qoq, -25% yoy) and net realised losses from the sale of investment securities.
? On balance, PPOP rose to S$1.6bn in 2Q22 (+13% qoq, +3% yoy). CTI ratio dipped to 43.5% (1Q22: 45.6%).
? Credit costs were in line with expectations at S$78m or 10bp (calculated).
Positive guidance from OCBC
? Growth in Asia remains positive, with economic growth in key markets likely to continue but at slower rates; cautious on near-term headwinds in the operating environment.
? Positive on FY22 outlook as NII growth from rising interest rates is expected to offset near-term pressure on non-II.
? Loan growth on track for mid-single-digit percentage.
? Continue to be disciplined on discretionary spending.
? Credit costs expected to be at low end of guidance (earlier guided for c.20-25bp). Asset quality remains resilient.
Other key highlights
? Loan growth: +1.3% qoq in 2Q22 (1Q22: +1.5% qoq).
? CTI: 43.5% in 2Q22 (1Q21: 50.5%, FY21: 45%).
? NPL ratio: 1.3% in 2Q22 (1Q22: 1.5%) as NPLs in Malaysia and Indonesia eased .
? CET1: 14.9% in 2Q22 (1Q22: 15.5%).
? ROE: 11% in 1H22 (1Q22: 7.5%, FY21: 9.6%).
Reiterate Add and TP of S$14.20
? We project positive share price movement on the back of the beat.