Friday, November 8th, 2024

OCBC and UOB Q3 2024 Results: Record Profits Amid Strong ASEAN Growth




Comprehensive Analysis of Key Singapore Companies



Comprehensive Analysis of Key Singapore Companies

Broker Name: Lim & Tan Securities

Date of Report: 8 November 2024

Overview of the Financial Markets

The FSSTI Index closed at 3,673.5, marking a 2.0% increase for the day, with a month-to-date (MTD) rise of 3.2% and a year-to-date (YTD) growth of 13.4%. The major global indices also showed positive trends, with the INDU Index at 43,729.3 and the SPX Index at 5,973.1. The NASDAQ (CCMP Index) rose to 19,269.5, reflecting a 6.5% MTD and 28.4% YTD growth. The UKX Index, however, showed a slight decline of 0.3% for the day.

OCBC Financial Performance and Analysis

Quarterly Performance

Oversea-Chinese Banking Corporation Limited (OCBC) reported a net profit of S\$1.97 billion for the third quarter of 2024 (3Q24), a 9% increase from S\$1.81 billion in the previous year (3Q23) and 2% above S\$1.94 billion from the second quarter of 2024 (2Q24). The net profit for the first nine months of 2024 (9M24) rose by 9% from a year ago to S\$5.90 billion.

Revenue and Income Breakdown

OCBC’s strong year-on-year performance was driven by robust non-interest income growth and lower allowances. Increased wealth management activities lifted fee and trading income, with insurance income also higher. The cost-to-income ratio (CIR) improved to 38.5% on positive operating jaws. Asset quality remained resilient with a non-performing loan (NPL) ratio declining to 0.9%, and customer loans grew 4% on a constant-currency basis. Return on equity rose to 14.1%, and earnings per share increased to S\$1.73.

Non-Interest Income and Trading Performance

Non-interest income grew 41% to S\$1.37 billion, with net fee income rising 10% to S\$508 million due to higher wealth management, investment banking, and loan-related fees. Wealth management fees climbed 25% from a year ago. Net trading income more than doubled to S\$508 million, with customer flow treasury income reaching a record S\$306 million. Insurance income from Great Eastern Holdings (GEH) increased by 6% to S\$233 million.

Operational Expenses and Allowances

Operating expenses increased by 9% year-on-year to S\$1.46 billion, driven by higher business volumes and IT-related expenses. Integration costs for PT Bank Commonwealth in Indonesia amounted to S\$15 million. Total allowances dropped 8% to S\$169 million, and share of results from associates was S\$251 million, 1% below 3Q23. Total non-performing assets (NPAs) as of 30 September 2024 were S\$2.80 billion, a 10% decrease from the previous year.

Outlook and Recommendations

OCBC is trading at 10x forward PE, 1.3x book, and a 5.3% yield. The consensus target price of S\$16.15 implies a potential upside of only 2%. The decent yield may support the share price, but the upside is likely to be limited, hence the recommendation is to maintain a HOLD on OCBC.

UOB Financial Performance and Analysis

Quarterly Performance

UOB Group posted a record S\$1.6 billion in core net profit for the third quarter of 2024 (3Q24), up 11% year-on-year (YoY). This performance was driven by record highs in net fee income, trading, and investment income.

Revenue and Income Breakdown

Net fee income grew 7% YoY to a record S\$630 million, driven by wealth management fees. Net interest income increased by 1% YoY to S\$2.5 billion, led by a 5% loan growth. Other non-interest income rose 70% YoY to S\$744 million, boosted by record-high trading and investment income.

Credit Costs and Asset Quality

3Q24 credit costs increased to 34 basis points due to the Thailand retail portfolio following the Citi integration. Credit costs for the full year are expected to remain within the guidance of 25 to 30 basis points. The non-performing loan ratio remained stable at 1.5%, and the Common Equity Tier 1 ratio strengthened to 15.5%.

Operational Highlights and Outlook

UOB achieved strong growth across all business segments and key markets in ASEAN. The successful integration of the Citigroup portfolio in Malaysia, Thailand, and Indonesia marked a significant milestone. Core net profit grew by 3% to S\$4.7 billion, with net interest income easing by 1% to S\$7.2 billion. Net fee income rose by 10% to S\$1.8 billion, and other non-interest income grew by 13% to S\$1.8 billion.

Valuation and Recommendations

UOB’s market cap stands at S\$55.7 billion, trading at 10x forward PE and 1.3x PB, with a dividend yield of 5.2%. The consensus target price is S\$34.4, representing a 3.3% upside from the current share price. Given the limited upside, the recommendation is to maintain a HOLD on UOB.

Additional Market Insights

Institutional and Retail Fund Flows

Institutional investors had a net sell of -S\$369.3 million compared to -S\$310.4 million a week ago. Retail investors had a net buy of +S\$306.0 million compared to +S\$237.1 million a week ago. The top institutional net buy stocks included Broadway Industrial Group (+S\$19.6 million) and Dyna-Mac (+S\$18.8 million), while the top institutional net sell stocks included DBS (-S\$116.0 million) and OCBC (-S\$29.1 million).

Company Acquisitions and Disposals

Significant acquisitions included Stamford Ty Corp Ltd by Dawn Wee with 2,262,600 shares at a transacted price of S\$0.22, and Raffles Medical Group by Loo Choon Yong with 1,000,000 shares at S\$0.885. Notable disposals included Acrometa Group Ltd by Chew Chee Keong with 7,043,548 shares at S\$0.03, and Dyna-Mac Holdings Ltd by the Estate of Lim Tze Jong with 3,000,000 shares at S\$0.65.

Share Buybacks

Companies engaged in share buybacks included Capitaland Investment Ltd with 1,750,900 shares at S\$2.96, and Zheneng Jinjiang Environment with 85,100 shares at S\$0.40. Other companies involved in share buybacks were OCBC with 350,000 shares at S\$15.32, and UOB with 28,000 shares at S\$32.50.

Dividends and Special Distributions

Upcoming dividends and special distributions include PEC Ltd with a final dividend of 2.0 cents and a special dividend of 1.5 cents, and MTQ with an interim dividend of 0.5 cents. Other notable dividends are from Unionsteel Holdings Ltd with a final dividend of 1.3 cents, and SIA Engineering with an interim dividend of 2.0 cents.

SGX Watch-List

The SGX watch-list includes companies such as Amos Group, Ascent Bridge Ltd, ASL Marine, and ASTI Holdings. Recent additions to the watch-list include Addvalue Technologies, Renaissance United, Telechoice, and Tiong Seng Holdings.

Conclusion

The financial performance of key Singapore companies like OCBC and UOB showcases robust growth driven by diversified income streams and strategic market positioning. However, with limited upside in share prices, the recommendation remains to hold on both OCBC and UOB. Keeping a close watch on institutional and retail fund flows, as well as upcoming dividends, can provide valuable insights for making informed investment decisions.


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