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Pinnacle
Master |
07-Nov-2007 09:29
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CIMB - OUTPERFORM; TP $11.00 OCBC (S$8.90) - 3QFY07 results - Big CDO charge offsets asset write-backs Within expectations, despite big CDO provisions. 3Q07 net profit of S$463m was within our expectations (S$449m) and consensus (S$475m). Key issue in 3Q results was the unexpectedly big S$221m CDO-related provision. Operationally, better-than-expected non-interest income compensated for a relatively weak NII. Net interest income (NII) was below expectations but forward guidance was positive. NII was flattish (+1% qoq) as a 6bps margin contraction offset the 4% qoq loan growth. Post-results teleconference suggests a positive outlook ahead though. 3Q margins contracted because of some timing mismatch in Singapore loan yields and funding costs, plus some mean reversion in Malaysia; not competition issues. Going forward, management guides that reduced competition from international banks plus a good pipeline of mega-sized corporate loans in Singapore bodes well for margins. On the volume front, we saw evidence of OCBC?s recent aggression into private housing mortgage exerting an impact in 3Q. Construction was no longer the solitary driver for loan growth. Mortgage growth was evident as well. Fee income sustained in a difficult quarter, forex trading gains was a positive. Capital market-related fess was sustained in 3Q. Strong non-interest performance came from forex trading, attributed to a 60:40 mix of proprietary and client activities. CDO provisioning seems aggressive, noticeable deviation from peer banks. Biggest surprise was the sizable CDO-related provisions amounting to 82% loss ratio against OCBC?s ABS CDO exposure. This was way higher than peers? 27-36% loss ratios seen the past two weeks. CDO provisioning was premised on 30% levels for AAA issues and full-provisioning for all ratings below that, which seemed a tad like kitchen-sinking provisions. Big CDO provisions (S$221m) eventually had minimal impact as loan recoveries (S$82m) and office property write-backs (S$101m) act as offsets. Maintain Outperform; target price from S$10.84 to S$11.00 on minor tweaks. Reserves saw a S$1bn marked-to-market gain due to the appreciation in market values of OCBC?s Bank of Ningbo stake post-listing. This drag down OCBC?s ROEs (2Q: 15.4, 3Q: 11.5%) but raised expected BV. Our target price is based on Gordon Growth (ROE 13.1%, COE 8.9%, g 4.2%), deriving a target 1.9x P/Adj. BV. Our estimates are unchanged. We roll forward to an end CY08 target price, applying 1.9x P/BV onto 08 BV of S$5.08 and property surplus of $0.71. Our target price implies 16.7x CY09 P/E, lower than our target 17x STI P/E. Maintain Outperform. |
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hawke009
Senior |
07-Nov-2007 08:50
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This time round, OCBC didn't issue any dividend to investor. Yes, am already vested in this share. |
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Pinnacle
Master |
06-Nov-2007 23:13
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OCBC's Q3 beats forecast, despite debt charge SINGAPORE, Nov 6 (Reuters) - Oversea-Chinese Banking Corp <OCBC.SI>, Singapore's third-biggest bank, said quarterly profit rose a better than expected 22 percent, despite a S$221 million ($152.4 million) charge on its exposure to credit market turmoil. The bank said on Tuesday Asian growth opportunities were encouraging and the write-downs may alleviate concerns about more losses, following a third quarter that saw global credit and equity markets hit after defaults in U.S. subprime mortgages. "What we have done in this quarter is prepare for the worst," said Chief Executive David Conner at a news conference, adding he expects little in the way of future write-downs. OCBC wrote down 34.3 percent of its portfolio of CDOs totalling S$641 million, higher than the 3.6 percent and 5.2 percent write-downs made by Singapore's other banks DBS Group <DBSM.SI> and United Overseas Bank <UOBH.SI>. The CDO write-down was offset to a net S$39 million by write-backs on allowances for loan and property assets. Its provisioning rate for asset-backed CDOs alone was 81.5 percent. Conner said OCBC's asset-backed CDO portfolio has seen some downgrades, but no defaults. "They really took a big haircut," said David Lum, an analyst at Daiwa Institute of Research. "I think going forward OCBC would be the least likely to write-down more, given they have written down a lot." Conner said OCBC chose a model used by a global bank to value its investments after the seizure of the asset-backed debt derivatives market. There was an additional S$3 million of writedowns on corporate CDOs, it said. Citigroup <C.N> recently took losses of $8-$11 billion before taxes, while Merrill Lynch <MER.N> had an $8.4 billion write-down. But Lum said underlying earnings for Singapore's three banks remain strong due to strong loan growth, fee income and negligible allowances outside their investments on risky debt. OCBC reported July-September net profit of S$463 million, up from S$379 million a year ago, and against an average forecast of S$417 million by five analysts polled by Reuters Estimates. OCBC shares ended up 0.6 percent, unchanged from before the result. INVESTOR WORRY Investors are worried exposure to CDOs may continue to trigger losses for banks in the coming quarters. DBS, which posted a better-than-expected 11 percent rise in quarterly profit on strong loan and fee growth, may expect charges or write-backs depending on changes to market conditions, a spokeswoman said on Tuesday. Second-ranked United Overseas Bank <UOBH.SI> posted a smaller-than-expected 8.2 percent rise in quarterly profit as U.S. credit turmoil hit trading and investment income. OCBC's loan growth of 15 percent was below the 23 percent reported by DBS. UOB's net loan growth was 15.6 percent. Net interest income rose 19 percent to S$565 million, while non-interest income climbed 35 percent to S$481 million. Fee and commission income grew 36 percent to S$211 million. Shares of OCBC and DBS were hit by the global credit squeeze in the third quarter. OCBC dropped 2.7 percent and DBS fell 5.3 percent, while UOB, which has benefited from Singapore's property boom, rose 0.5 percent. All lagged a 4.5 percent gain in the benchmark Straits Times index. |
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Pinnacle
Master |
06-Nov-2007 22:16
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Its ok.. Tomorrow should be a good day for banks after days of sell down. Based on the earning till date and current price, OCBC is still a bargain now. Furthermore, after today's good financal report, brokerage firms will be covering OCBC with BUY and OVERWEIGHT call. Very soon investors will notice this and start buying up OCBC again. Stay vested here. |
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hawke009
Senior |
06-Nov-2007 17:40
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Not only that, investors are more cautious with what they invest recently due to the extreme volatility in the stock market. That's why OCBC is stagnant even though it post above expectations profit for the quarter. |
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Pinnacle
Master |
06-Nov-2007 14:29
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The share price is not moving with the good report. Maybe many felt that OCBC had wrote down too much for their CDOs. But in another perspective, this also means that OCBC will not be under pressure from their CDOs in the quaters to come as they had buffered enough for it. |
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Pinnacle
Master |
06-Nov-2007 13:49
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Singapore OCBC Q3 beats forecast, despite debt charge Nov 6 (Reuters) - Oversea-Chinese Banking Corp The bank said on Tuesday that Asian growth opportunities were encouraging, following a third quarter that saw global credit and equity markets suffer sharp falls after defaults in the U.S. subprime mortgage market spread to hammer financial stocks. OCBC took an allowance worth S$221 million against its exposure of S$270 million in asset-backed collateralised debt obligations (CDOs), though this was offset to a net S$39 million by write-backs on allowances for loan and property assets. "They really took a big haircut," said David Lum, an analyst at Daiwa Institute of Research. "I think going forward OCBC would be the least likely to write-down more, given they have written down a lot." Lum said that underlying earnings for Singapore's three banks remain strong due to strong loan growth, fee income and negligible allowances outside their investments on risky debt. "We have exercised prudence in making substantial allowances for our ABS CDO portfolio," OCBC's CEO David Conner said in a statement. "Given the sound economic fundamentals in our main markets -- Singapore, Malaysia, Indonesia and China -- growth opportunities for OCBC continue to be encouraging." OCBC reported July-September net profit of S$463 million, up from S$379 million a year ago, and against an average forecast of S$417 million by five analysts polled by Reuters Estimates. Singapore's strong economic growth and buoyant property markets have lifted loans and earnings of its three banks, but these gains may be difficult to sustain if there is a sharp economic slowdown in the United States -- Asia's biggest export market. Investors are also worried that exposure to CDOs may continue to trigger losses for banks in the coming quarters. Last month, second-ranked United Overseas Bank DBS Group OCBC's loan growth of 15 percent was below the 23 percent reported by DBS, but almost at par with UOB's 15.6 percent. Net interest income rose 19 percent to S$565 million, while non-interest income climbed 35 percent to S$481 million. Fee and commission income grew 36 percent to S$211 million. OCBC said operating expenses rose 28 percent to S$427 million, due to higher staff costs and busines promotion expenses. Shares of OCBC and DBS were hit by the global credit squeeze in the third quarter. OCBC dropped 2.7 percent and DBS fell 5.3 percent, while UOB, which has benefited from Singapore's property boom, rose 0.5 percent. All lagged a 4.5 percent gain in the benchmark Straits Times index <.STI>. |
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Pinnacle
Master |
06-Nov-2007 13:23
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OCBC Group Reports Third Quarter Net Profit of S$463 million Core net profit rose 12% to S$425 million in the quarter, and 44% to S$1,453 million for the first nine months Singapore, 6 November 2007 ? Oversea-Chinese Banking Corporation Limited (?OCBC Bank?) today reported an increase of 12% in its core net profit to S$425 million for the third quarter of 2007 (?3Q07?). Earnings were lifted by strong revenue growth, with net interest income rising by 19% to S$565 million, and non-interest income increasing by 35% to S$481 million. Net interest income growth was driven by loans growth of 15%, while non-interest income was boosted by a 36% increase in fee and commission income as well as higher foreign exchange income. An allowance of S$221 million1 was taken in the third quarter income statement for the Bank?s assetbacked securities (?ABS?) collateralised debt obligations (?CDO?) portfolio of S$270 million, which is part of the total CDO portfolio of S$641 million. This allowance was partially offset by net write-backs in allowances for loans and properties, resulting in an overall net allowance of S$39 million for the quarter. Compared to 2Q07, core net profit was lower by 18% due mainly to the net allowance of S$39 million in 3Q07, as compared to a S$16 million write-back in 2Q07. In addition, the 3Q07 effective tax rate was higher as a portion of the CDO allowance was not tax deductible. The Group?s diversified revenue streams helped to keep its overall revenue largely unchanged from the previous quarter despite the impact of the US sub-prime crisis on markets globally. For the first nine months of 2007 (?9M07?), the Group achieved core earnings of S$1,453 million, up 44% compared with 9M06, supported by broad-based revenue growth. Annualised return on equity, based on core earnings, was 11.5% in 3Q07 and 14.1% in 9M07, compared with 12.3% in 3Q06 and 11.2% in 9M06. Equity was boosted by a mark-to-market gain of S$1.02 billion on the Group?s investment in Bank of Ningbo following its listing on the Shenzhen Stock Exchange in July 2007. Excluding this effect, return on equity would have been 12.2% for 3Q07, and 14.4% for 9M07. Annualised core earnings per share for 9M07 grew by 46% to 61.8 cents. Core earnings exclude one-time gains from the divestment of non-core assets and tax refunds. A tax refund of S$38 million was received in the third quarter. Reported group net profit, which includes divestment gains and tax refunds, was S$463 million for 3Q07 and S$1,642 million for 9M07, representing year-on-year growth of 22% and 10% respectively. Third Quarter Revenues The Group?s core revenue grew by 26% year-on-year to S$1,047 million in 3Q07. Net interest income rose 19% from a year ago and 1% from the previous quarter to S$565 million, driven mainly by growth in interest earning assets. Customer loans grew by 15% year-on-year, and 4% from the previous quarter, to S$68.0 billion, contributed largely by growth in corporate and SME loans in Singapore, Malaysia, Indonesia and other overseas markets. Housing loans grew by 3% over the previous quarter to S$18.6 billion, contributed mainly by increase in Singapore private housing loans. Following a significant increase in the second quarter, net interest margin fell 6 basis points to 2.07% in the third quarter as yields on loans and inter-bank placements fell more than the cost of funds. Non-interest income grew 35% year-on-year to S$481 million, contributed mainly by higher fee and commission income, and foreign exchange income. Fees and commissions rose 36% to S$211 million, with strong contributions from stock-broking, wealth management, loan-related and traderelated income. Foreign exchange income increased from S$23 million to S$68 million. Compared with 2Q07, non-interest income was marginally lower by 2%, as higher foreign exchange income was mainly offset by lower contributions from securities and derivatives dealing, life assurance profits, dividend income and investment banking income. Third Quarter Operating Expenses Operating expenses increased 28% year-on-year and 3% quarter-on-quarter, to S$427 million, attributed mainly to higher staff costs and business promotion expenses. Staff costs rose 38% year-onyear, due to higher bonus accruals driven by the Group?s better performance, higher base salaries, and a 16% increase in headcount mainly in Indonesia and Malaysia. Higher business promotion expenses were incurred in support of the growth in business and the Group?s regional expansion. The cost-to-income ratio for 3Q07 was 40.8%, compared with 40.0% in 3Q06 and 39.6% in 2Q07. Allowances and Asset Quality A net allowance of S$39 million was made in 3Q07, compared to S$3 million allowance in 3Q06. Continued loan recoveries and upgrades resulted in a S$82 million net write-back in specific allowances for loans during the quarter. In addition, there was a net write-back of S$101 million to allowances for other assets, mainly on office properties in Singapore. Allowances had been made for these properties from 2001 to 2004, and were written back in 3Q07 following the continued strong recovery in the office property market. These write-backs were offset by allowances of S$221 million for the Bank?s investments in CDOs. The allowances were specifically for the ABS CDOs of S$270 million (out of a total CDO portfolio of S$641 million) which had exposures to US sub-prime mortgages. Given the illiquid and inactive ABS CDO market, the Bank ceased using counterparty quotes to value its ABS CDOs in 3Q07. Instead, a third party valuation model was used to estimate the fair value of the ABS CDO portfolio, and allowances to adjust the fair value were taken to income statement accordingly. The Bank?s corporate CDO portfolio of S$372 million continues to be marked to market based on counterparty quotes. As of 30 September 2007, the fair value of the corporate CDOs was S$357 million. The Group?s non-performing loans (?NPLs?) fell 8% from S$1.61 billion as at 30 June 2007 to S$1.48 billion as at 30 September 2007, while the NPL ratio improved from 2.4% to 2.1%. Total cumulative specific and portfolio allowances amounted to S$1.59 billion, providing coverage of 107.2% of total NPLs, higher than the coverage of 104.0% at 30 June 2007. Nine Months? Results Core net profit for 9M07 rose by 44% to S$1,453 million. Net interest income grew 25% to S$1,631 million, driven by a 10 basis-point improvement in net interest margin from 1.98% to 2.08% and a 19% growth in interest earning assets. Higher fee and commission income, profits from life assurance, as well as net gains from investment securities and foreign exchange income lifted non-interest income by 43% to S$1,480 million. For 9M07, non-interest income accounted for 47.6% of the Group?s total income, up from 44.3% in 9M06. Operating expenses increased 21% to S$1,195 million, attributable mainly to higher staff costs and business promotion expenses. The cost-to-income ratio for 9M07 was 38.4%, lower than the 42.3% for 9M06. Continued loan recovery efforts yielded a net write-back of S$103 million in specific allowances for loans for 9M07, compared to a net charge of S$6 million in 9M06. Net write-backs of allowances on other assets amounted to S$95 million, mainly for office properties in Singapore. These were offset by the CDO-related allowances of S$221 million, resulting in an overall net allowance of S$23 million for the nine months. Capital Position As of 30 September 2007, the Group?s total capital adequacy ratio (?CAR?) was 12.8% and Tier 1 CAR was 11.9%. These were lower than the ratios of 14.6% and 12.5% respectively as at 30 June 2007, mainly due to the growth in risk weighted assets, payment of the Bank?s interim dividend and annual amortisation of the Tier 2 subordinated debt. During the third quarter, the Bank bought back approximately 0.5 million of its ordinary shares for S$4.2 million, as part of its third S$500 million share buyback programme which commenced in June 2006. As at the date of this announcement, S$269 million have been utilised to purchase approximately 39.2 million shares under the programme. Commenting on the Group?s performance, CEO David Conner said: ?Our core earnings held up well in a quarter which saw significant upheavals in financial markets globally. We have exercised prudence in making substantial allowances for our ABS CDO portfolio. Given the sound economic fundamentals in our main markets ? Singapore, Malaysia, Indonesia and China ? growth opportunities for OCBC continue to be encouraging.? |
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c4tvv6qs
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06-Nov-2007 13:20
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Ho liao.....I contra 1 lot at 8.8 SGD to earn some pocket money. Hope can rise till at least 9.00SGD.... |
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hawke009
Senior |
06-Nov-2007 13:17
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minesweeper, Master Pinnacle is here. Do watch out for his posting. Erm... OCBC seems to do well. |
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Pinnacle
Master |
06-Nov-2007 13:13
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OCBC to CHEONG!!! Singapore's OCBC profit beats forecast, takes charge SINGAPORE, Nov 6 (Reuters) - Oversea-Chinese Banking Corp. The bank reported net profit of S$463 million for the July-September period, up from S$379 million a year ago and against an average forecast of S$417 million by five analysts polled by Reuters. Global credit and equity markets experienced sharp falls in the third quarter after defaults in U.S. subprime mortgage market spread, drying up liquidity in credit markets, hammering valuations of financial securities and causing hefty losses in bank earnings across the globe. The bank also booked at writeback for loans and properties in the quarter, taking its total net allowance to S$39 million. Last month, No. 2 United Overseas Bank DBS Group Shares of OCBC and DBS were hit in the third quarter by the global credit squeeze. OCBC dropped 2.7 percent, DBS fell 5.3 percent, while UOB, which has benefited from Singapore's property boom, rose 0.5 percent in the quarter. All lagged a 4.5 percent gain in the benchmark Straits Times index <.STI>. |
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minesweeper
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06-Nov-2007 13:05
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Any idea what time the results are going to be announced ? |
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hawke009
Senior |
06-Nov-2007 12:50
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Anxious moment now... Let's pray hard. Hope OCBC results will not be a disappointment. :-) |
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Pinnacle
Master |
06-Nov-2007 08:52
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Judgement day has arrived. Whether there is another banks sell-off day or a cheong day depends significantly on OCBC's result. |
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hawke009
Senior |
05-Nov-2007 10:39
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Keep finger cross manzzz... Later OCBC announce surprise Q3 results---> Profits loss or Profit below expectations etc. Then, the share price will freefall ya. I have big bet in OCBC so I also hope it will rocket to the moon. :-p |
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Pinnacle
Master |
05-Nov-2007 08:30
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Great Eastern Holdings Limited announced increased in profit of 34% YoY.OCBC should have a good quarter. |
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minesweeper
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01-Nov-2007 11:56
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Looks like this one is sure to cheong after results announcement 06-Nov.... so far OCBC has been showing good performance and is definetely undervalued as compared to DBS/UOB... so there is a definte potential to grow... and the reports so far have been all positive.... |
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Pinnacle
Master |
01-Nov-2007 11:40
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Sept 2007 Mortgage Growth Continues Strong Momentum Sept 2007 loans +12.7%yoy, mortgages +12.5%? Sep 2007 domestic system loans grew S$5bn or +2.3%%mom (+12.8%yoy, +12.4%ytd) to S$218.7bn. Consumer loans (+10.1%yoy) crossed S$100bn for the first time as mortgages (+12.5%yoy, +11.3%ytd) passed S$70bn. Mortgage monthly growth of +2% (S$1.35bn) was slower than August, but still on track for +17.6%yoy end-2007. Residential property sales remain strong ? URA 3Q07 data reported residential property transaction of S$14.2bn, down from S$23bn in 2Q, but still very much in record territory. This suggests that mortgage demand will continue to be robust through the rest of the year. Removal of Deferred Payment Scheme? Citi Singapore property analyst Wendy Koh views that while the removal of DPS could dampen near-term sentiments, strong fundamentals such as the tight physical supply, robust economic growth will continue to lend support to the residential market. This view was also shared by UOB management in their post-3Q07 result comments. Offshore lending +31%yoy ? After a massive +S$11bn addition in August, Singapore's ACU market saw another increase of S$6bn for September, on broad-based growth. ACU loan growth now stands at +31%yoy and +29%ytd. Loan-deposit ratio 70.8% - (low of 67% in May). Demand deposits (+20.5%ytd) and saving deposits (+17.5%ytd) are growing faster than fixed deposits (+9.5%ytd), a potential positive for bank margins. |
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Pinnacle
Master |
01-Nov-2007 11:01
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DBS Vickers - Sep-07 stats: Stunning loan growth of 12.8% y-o-y �� The system loan growth in Sep-07 swelled to 12.8% y-o-y and 4.6% q-o-q in Jul-Sep quarter, compared to 10.8% y-o-y and 4.9% q-o-q in Jun-Aug quarter. This is the highest y-o-y growth achieved since Dec-97. �� Consumer loans, particularly housing loans, grew even stronger in Sep-07 at 12.6% y-o-y and 6.3% q-o-q against 10.7% y-o-y and 5.5% q-o-q in Aug-07. Business loans regained momentum to 15.1% y-o-y and 4.4% q-o-q (Aug-07: 13.0% y-o-y and 5.4% q-o-q), while construction loans spurred to 21.2% y-o-y and 4.9% q-o-q (Aug-07: 14.7% y-o-y and 3.1% q-o-q vs. 18.9% y-o-y and 5.2% q-o-q in Jul-07). �� Deposit growth remained sturdy at 22.0% y-o-y but was flat at 0.8% q-o-q. Growth continued to arise from demand deposits, while fixed deposits growth turned negative on a q-o-q basis. Meanwhile, LD ratio inched up to 70.8% in Sep-07 as loan growth outpaced deposit growth. Loan growth at its strongest. The system?s domestic loans grew a stunning 12.8% y-o-y, the highest since Dec-97. Growth came from a combination of stronger consumer and business loans. Consumer loans grew its strongest, hitting a double-digit level of 10.1% y-o-y, which was last seen in Apr-04. Meanwhile, business loans regained its momentum to 15.1% y-o-y. Housing loans maintained its double-digit growth status. Making its first double-digit y-o-y growth in Aug-07, housing loans continued to accelerate in Sep-07, growing at 12.6% y-o-y and 6.3% q-o-q. We believe this could be due to the influx of private residential activities thriving from bullish home sales and expectations of en-bloc sales as well as effects of the deferred payment scheme, which has reached maturity. Construction loans picked up momentum. Construction loans growth picked up in Sep-07 at 21.1% y-o-y and 4.9% q-o-q (Aug-07: 14.7% y-o-y and 3.1% q-o-q). We believe that construction loan growth would remain resilient in view of increased construction demand and hence flow through to the volume of construction loans. Overall deposit growth remained sturdy. Deposit growth stood strong at 22.0% y-o-y but was flat q-o-q (Aug-07: 21.9% y-o-y and 1.1% q-o-q) Growth in demand deposits were strong at 34.3% y-o-y and 4.5% q-o-q, while fixed deposits grew 17.4% y-o-y but turned negative to -0.1% qo- q. Despite flattish interest spreads, we believe lower funding costs coupled with volume of loan growth would at least maintain healthy NIMs for banks. Maintain Overweight. We maintain our overweight stance despite concerns over the US sub-prime issue and the respective CDO exposures held by the banks. We believe strong loan growth coupled with fee income would be the key driver to earnings. Maintain overweight with UOB (Buy, TP S$27.50) as our top pick. We also have a Buy recommendation for OCBC (Buy, TP S$10.40). Housing loan growth prospects positive. We expect the momentum to continue over the next few quarters. With the deferred payment scheme scrapped, we believe that housing loan growth would still remain strong as house buyers would then need to obtain a loan now rather than wait for the project to complete. This move may, however lower demand for construction loans, but we believe that the Integrated Resorts projects (both at Sentosa and Marina) should more than sufficiently retain overall demand for construction loans. More than enough for all banks to share the housing loan market pie. We believe all three domestic banks would generally benefit from the strong growth in housing loans. While we expect UOB to maintain its consistent growth in housing loans, we expect OCBC?s growth to pick up in 2H07, given its high housing loan approvals of 75% q-o-q in 2Q07. |
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Pinnacle
Master |
25-Oct-2007 14:19
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DBS Vickers - Banking sector 3Q07 earnings expected to be topline dominated �� Singapore banks are expected to release their respective 3Q07 results over the next three weeks. We expect OCBC to post strongest y-o-y improvements in its 3Q07 results compared to its peers. �� We expect earnings for the 3Q07 period to be topline driven owing to strong loan growth. Spilling over from the strong industry numbers, we expect continued and strong pick up from the housing loans segment. �� Apart from overall earnings, we expect attention to be focused on possible treatment to CDO exposures of banks i.e. whether there would be potential provisioning impacts or otherwise. While we do not discount the possibility of some implications, we expect provisions, if any, would not significantly affect earnings. Overall earnings to be robust. We expect earnings growth to remain strong y-o-y with UOB at 23% and OCBC at 25%. OCBC has showed strong and consistent growth over the last two quarters and we expect the momentum to continue. OCBC?s ROE is expected to be lower in 3Q07 due to the inclusion of unrealised gains into fair value reserves for its investment Bank of Ningbo. Key highlight for the quarter would be treatment of CDO exposures. While we note that share prices of banks have retraced since CDO issues first cropped up in end-July/early-Aug 07, we believe interest would still lie in how banks would treat their respective CDO exposures. We do not expect provisions, if any, to significantly affect banks? earnings. Earnings to be driven by net interest income. Stemming from strong loan growth, we expect net interest income to be the main growth driver in 3Q07. We project net interest income growth of 5% for UOB and 23% for OCBC. Non-interest income to see slight slowdown in 3Q07 but not significantly. Amidst the chaos in 3Q07 due to CDO issues, we expect market-related non-interest income activities to be somewhat slower during the period especially trading and investment-related income. But we do not expect such situations to persist. Non-interest income items which are loan-related are expected to show strong growth. Meanwhile, we still expect items such as forex, fund management and wealth management to remain healthy. Loan growth to be strong reflecting industry trends. We believe loan growth would be strong in 3Q07 at c. 18% y-o-y. This would be positive for OCBC given their sluggish growth in housing loans in previous quarters. We expect UOB to post consistent growth in construction segment and moderate housing loan growth. Maintain Overweight. We reiterate our overweight stance on Singapore banks as well as our Buy calls for UOB and OCBC. |
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