OCBC earnings boom is unsustainable
Its1Q12 earnings wowed the markets but on closer inspection it is composed mainly of one-off investment gains.
As such, it will be hard for OCBC to continue posting fantastic earnings results as the net trading income from investment gains fails to repeat in the coming quarters.
Here's more PhillipCapital:
OCBC 1Q12 earnings beat both our and consensus’s estimates. Earnings surprise was largely due to the 47.3% y-y, 333.3% q-q increase in Profit from life assurance to S$221 million mainly from investment gains, and sustained high q-q net trading income of S$160 million. Profit from life assurance is a component of Profit from Insurance.
Although 1Q12 core earnings of S$790 million beat our expectations of S$627 million by 226.0%, these were mostly from market driven income, namely higher marked to market investment gains, and net trading income. We agree that the underlying insurance business has improved based on the 14% y-y increase in NBEV, but 1Q12’s gains from insurance are not sustainable. Although we note that part of the net trading income is from customer flows which may possibly be recurring, and that management has indicted a 26% y-y increase in income from customer flows, the volatile past performances do not give us comfort on its sustainability. However, wealth management revenue has rebounded and we continue to expect it to be a main driver of Fees and commission. Loans growth in 1Q12 was slow but expected to increase while NIMs are expected to remain around current levels.