OCBC’s earnings to slump 6-8%, warns analyst

CIMB cuts its FY11-13 earnings estimate for OCBC by 6-8% mainly from insurance and trading-related income.

CIMB is wary of the new credit cycle though OCBC managed the last one well.

Here’s more from CIMB:

• Downgrade to Underperform from Neutral; target price cut to S$8.20 (1.34x P/BV), from S$10.19 (1.66x P/BV). We cut our FY11-13 earnings by 6-8% mainly from insurance and trading-related income. Our target price follows lowered ROEs down to S$8.20, now based on 1.34x CY11 P/BV (GGM, ROE 11.1%, COE 9.2%, growth 4.3%). We are wary of the new credit cycle even though OCBC managed the last one well. Its Asean credit was less affected then. Earnings risks now stem from revenue shortfalls, in our opinion. That is the basis for our earnings and rating downgrade, and could potentially trigger a de-rating.

• Smaller capital-market fees; insurance, WM contributions can slow too. OCBC’s investment-banking and stock-broking contributions are smaller than peers. Its topline volatility typically stems from insurance, which has a tendency to be hurt by lower contributions from non-par funds and poorer investment returns when markets crumble. Wealth-management fees can also slow.

• Premium valuations. OCBC’s credit risk management and more sustainable insurance business tend to put its valuations at slight premiums to the sector. A comparison of current P/BV with 2003 lows (recession scenario) and 1998/2009 lows (crisis) suggests that its downside is somewhere in-between that of DBS and UOB. Common de-rating catalysts for the sector are growing fears of a banking
contagion.

If you've been wondering whether SBR could work for your company — yes, probably.

A lot of the companies we partner with started as readers. They'd been following our coverage for a while, saw their own customers and competitors in it, and eventually asked the obvious question: could we do something with you? The answer is usually yes. The shape of it depends on what you're trying to do.

The options are broader than most people assume — thought leadership articles, sponsored content, industry summits across Southeast Asia, regional awards programmes, podcasts, and media placements in print and digital. Some partners use one channel; most use a mix. We figure out the right combination by starting with your brief, not with our rate card.

So if the question has been on your mind, here's the easy way to ask it.

We'll tell you honestly whether we can help, and how. It's a better use of everyone's time.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia