OCBC

OCBC: 2Q11 results slightly below expectations.
Net profit came in at $577m, +15% yoy, -3%qoq (excl 1Q11’s divestment gain), against consensus forecast of $612m. The lighter net profit was due to higher costs, as well as weaker trading and insurance income.
Still, analysts note that the overall results are decent.
Net interest income was $827m, +15% yoy, +6% qoq, driven by strong loan growth of 27% yoy across various industry sectors in Spore and key markets overseas.
Net interest margin of 1.87% was -3bps qoq, -9bps yoy, due to the persistent low interest rate environment and continued growth in lower yielding trade-related loans as well as lower spreads for housing loans.
Loan-deposit ratio however, reached a record 89.1%, up from 86.8% qoq.
Non-interest income was $586m, +13% yoy, with higher fees, especially on wealth management AUM rising 12% in 1H11 to US$29.6b. Although sequentially, NII was down 5%.
Operating expenses rose 11% YoY and 6% QoQ to $618m due to higher staff costs from headcount growth, salary increments, and sales commissions and incentive compensation linked to stronger business volumes.
NPL ratio improved to 0.8% from 1Q11’s 0.9%.
OCBC remains well capitalised, with a Tier 1 CAR of 15.4%, and total CAR of 17%, well above regulatory minimums of 6% and 10% respectively.
OCBC declared an interim dividend of $0.15, unchg yoy. This represents 43% of core net profit. The Script Dividend Scheme will be applicable to the interim dividend.
ROE was 11.4% for the quarter, bringing ROE for the half to 11.8%.
Stock trades at 1.7x P/B, 14.3x P/E.
Citi maintains Buy with TP $10.60.