Higher dividends for FY23
- 4Q23 net profit below expectations
- 4Q23 NIM improved 2bps q-o-q
- Declared 2H23 DPS of 42 Scts; full-year dividend payout ratio at 53%, in line with expectations
- Maintain HOLD with higher TP of S$14
4Q23 revenue and net profit below consensus. OCBC reported 4Q23 revenue of S$3.3bn (+9% y-o-y/-5% q-o-q) with net profit of S$1.6bn (+12% y-o-y/-10% q-o-q), which are below consensus expectations. Operating costs grew 1% y-o-y/declined 2% q-o-q as a result, and cost-to-income ratio (CIR) rose to 40.0% for 4Q23 (3Q23: 39.1%). Capital ratios remained strong, with CET1 and total CAR at 15.9% (3Q23: 15.3%) and 18.1% (3Q23: 16.9%), respectively. 4Q23 net interest income of S$2.5bn rose 3% y-o-y/flat q-o-q, as 4Q23 saw support from a +2bps uplift in NIM q-o-q. Meanwhile, loan growth was +1% y-o-y/-1% q-o-q.
Higher non-interest income supported by increased trading and investment income. Non-interest income of S$811m improved 32% y-o-y/declined 17% q-o-q, driven by lower insurance income and net gains from the sale of investment securities. Net fees and commissions of S$460m (+16% y-o-y/flat q-o-q) were resilient despite the typical seasonality effect in 4Q23, driven by stronger wealth fees, loans, trade, guarantees, remittances, and other fees. The trading income of S$222m (+22% y-o-y/+2% q-o-q) saw higher non-customer flow q-o-q, while profit from GEH was lower at S$88m (-60% y-o-y/-12% q-o-q), due to higher medical claims.
4Q23 saw higher credit costs of 20bps (3Q23: 17bps) due to higher general allowances. Total allowances were higher q-o-q, at S$187m, 21bps (3Q23: S$184m, 17bps), as there was a writeback of general allowances (stage 1+2): S$182m, 21bps (3Q23: wrote back S$36m, -4bps) alongside lower specific allowances (stage 3): S$5m, 0bps (3Q23: S$184m, 21bps). General allowances taken during the quarter relate to overlays on the commercial real estate (CRE) sector. OCBC believes the extra overlays in ECL1+2, which are procyclical, reflect on some geographies with weaker real estate markets, though no NPLs arise from these markets. New NPA formation was S$54m, declining q-o-q (3Q23: S146m, FY23 averaged S$101m). The NPL ratio remained flat q-o-q at 1.0% and the allowance coverage rose to 151% (3Q23: 139%).
2024 management guidance. As loan growth remains challenging, management has guided for low single-digit loan growth. The ROE is expected to be between 13%-14% while credit costs are expected to range between 20-25bps. Management expects NIM to be 2.20% to 2.25%.