OCBC

OCBC: 2Q13 profit ($597m) were below CIMB's expectation of $666m and consensus $641m primarily because of low insurance contributions (MTM losses for non-par fund) and rising costs. 1H profit made up 47% of CIMB's FY13. House cut FY13 EPS by 3% and lower its GGM target price (1.27x CY13 P/BV). CIMB maintain UNDERPERFORM with TP of $10.09. Excluding the insurance swing, core banking revenue looked fine. Loan growth charged ahead by 7% qoq, driven by a mix of trade- finance loans, US$ loans to Singapore corporates and overseas loans. Like the other banks, margins may have finally stabilised (2Q: 1.64%). Fees appeared strong for wealth management, trade and loan fees. Treasury also did well on customer flows. Insurance contributed only $56m in 2Q (-74% qoq) as life-assurance profits got hit by marked-to-market losses for GEH’s non-par fund. The bloodbath from Jun’s bond market also showed up on AFS (-$499m or 14.5¢/share). Together, these trimmed book-value forecasts and TP by 1%. Management says part of GEH’s MTM losses had been recovered in Jul. 2Q’s disappearing insurance earnings conspired with slightly higher-than-expected overheads to pull PPOP 10% below CIMB's forecast. Provisioning went up, in line, mostly from GPs. Without insurance contributions, 2Q ROE was an ugly 9.9%.