OCBC

OCBC: OCBC’s life insurance arm Great Eastern has seen itsshare price increase 5% in 1Q14, 16.9% in 2Q14 and a further 3.8% in Jul 14. Nevertheless, the stock remains thinly traded with an average daily turnover of US$0.6m for the past three months. UOB Kay Hian reckons the recent change at top management coupled with the meteoric rise in Great Eastern’s share price has given life to speculation that OCBC is seeking to divest Great Eastern. House do not expect OCBC to rush into disposing Great Eastern. However, the rationale for owning an insurance subsidiary has diminished due to hefty deduction to CET-1 capital based on Basel 3. Bancassurance sales could be enhanced by distributing third-party products from a broad panel of insurance partners without in-house manufacturing from Great Eastern. Disposing its 87.1% stake in Great Eastern at 2013 P/EV of 1.5x, or S$12b, would increase CET-1 CAR from 7.3% to 13.8% post-acquisition of Wing Hang Bank. UOB maintains Buy rating with TP of $11.14.