OCBC

OCBC: 4Q14 core net profit of $791m (+11% q/q, -6% q/q) fell short of estimates, dragged by lower contributions from net interest income and a rise in operating expenses and provisions. The result brings FY14 core net profit to $3.5b (+25%)

Net interest income came in at $1.3b (+24% y/y, +2% q/q), driven by total loans growth (+24%) from Indonesia (+18%), Malaysia (+14%) and in particular Greater China (+104%) as a result of the acquisition of Wing Hang bank. Net interest margin remained muted at 1.67% (+3bps y/y, -1bps q/q), due to higher cost of funds at 1.13%, its highest in 10 quarters.

Customer deposits rose 26% to $246m, setting the loan-to-deposit ratio at 84.5% (4Q13: 85.7%, 3Q14: 85.5%).

Non-interest income was at $762m (+12% y/y, -5% q/q), with the q/q decline largely due to seasonality trend. On a y/y basis, income was driven by contributions from wealth management (+8%), credit card (+77%) and gain from investment securities (+2047%), offset partially by a 74% decline in trading gains to $18m, due to less favourable trading conditions.

Overall operating expenses rose 29% to $922m, largely as a result of the acquisition of Wing Hang bank. Excluding Wing Hang, operating expenses would have been up 14%, led by higher staff costs and business promotion expenses.

Total provisions surged 127% to $154m, with the increase partly contributed by the consolidation of Wing Hang, and also higher allowances coming from Malaysia and Singapore.

Asset quality remained healthy, with NPL ratio at 0.6% (4Q13: 0.7%, 3Q14: 0.7%), while loan-loss coverage was at 171%.

ROE declined to 10.6% (4Q13: 11.9%, 3Q14: 13.1%) and capital adequacy ratios remained stable with fully-loaded CET1 CAR of 13.8% and Tier-1 CAR at 13.8%.

Going forward, management aims to deepen its presence in its core markets, and participate in opportunities arising from global market and consumer trends, while capturing trade, capital and wealth flows associated with increased economic interconnectivity between Greater China and Asean.

In Greater China, the group plans to accelerate wealth management, retail & commercial banking and insurance business growth supported by an enlarged product suite, expanded geographical coverage and bigger customer franchise. The group also aims to strengthen its customer deposit funding base in USD and RMB.

DPS of 18¢ declared, taking FY14 total payout to 36¢ (FY13: 34¢).

OCBC trades at 1.42x P/B versus DBS’s 1.31x P/B and UOB’s 1.32x P/B.