Previous Day Closing price: $5.08
Recommendation: Hold (maintained)
Target price: $5.10 (maintained)
Yield: 5.0% (2008F)
OCBC will be releasing its 4Q08 results on 18 Feb. We are expecting the group to post a net profit of $382m in 4Q08 which is moderately below Bloomberg consensus estimates of $389m. Assuming that its dividend payout policy stays at 45%, a final DPS of 9 cents could be expected.
Insurance income is likely to stay subdued (we are expecting a 24% y-o-y decline) as more than 50% of GEH’s revenue is derived from investment profits that are hard to replicate in the current environment. The surge in life assurance profits led by mark-to-market gains seen in 3Q08 is highly unsustainable.
OCBC’s Tier-1 CAR of 14.4% is currently the highest among the Singapore banks after it raised 2 preference share issues of up to $2.5bn last year. The preference shares carry a fixed dividend rate of 5.1% per annum, payable semiannually. Its strong Tier-1 CAR that way exceeded MAS’s requirement of 6%, provides a good safety net to cushion against the downturn.
We believe OCBC’s current premium valuations to the sector average of 0.9x PBV reflect its superior capital strength. We are keeping our Hold rating on the stock and prefer an entry level of $3.60 on 0.8x book value as at Sep 08.
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