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OCBC Downgraded to Hold: FY25 Earnings Growth Under Pressure – Analyst Report

Posted on April 28, 2025 at 9:12 am (GMT+8)

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Broker Name: CGS International
Date of Report: April 23, 2025

OCBC Downgraded to Hold: Earnings Growth Under Pressure Amidst Economic Uncertainty

OCBC Stock Analysis

CGS International has downgraded Oversea-Chinese Banking Corporation (OCBC) to a “Hold” rating, citing concerns over FY25F earnings growth due to a dampened economic outlook. The report anticipates OCBC’s 1Q25F net profit to be S\$1.83 billion, a 7.6% year-over-year decrease, but an 8.5% quarter-over-quarter increase. This projection is based on lower net interest income (NII) and a normalized cost-to-income ratio (CIR) of approximately 41%. [[1]]

Revised Earnings Expectations

Previously, OCBC was expected to surpass its FY25F guidance, but earnings per share (EPS) estimates have now been cut by 4.9-5.2% for FY25F-27F. The new GGM target price (TP) is set at S\$17.20, reflecting a 2.3% year-over-year earnings decline, a stark contrast to the previously anticipated 3.1% growth. [[1]]

1Q25F Performance Preview

OCBC’s total income for 1Q25F is projected to be S\$3.58 billion, a slight decrease of 1.3% year-over-year but a 4.7% increase quarter-over-quarter. NII is expected to soften to S\$2.35 billion, reflecting a 3.7% year-over-year and 4.4% quarter-over-quarter decrease. This is attributed to a further compression of net interest margins (NIMs) by 3 basis points quarter-over-quarter, fully reflecting the impact of two interest rate cuts by the US Federal Reserve in October and December 2024. Additionally, customer loan growth is expected to ease off from the 4.6% quarter-over-quarter climb in 4Q24, which was likely due to short-term trade loans. [[1]]

Non-interest income (non-II) is estimated to grow modestly by 3.4% year-over-year, recovering 28.0% quarter-over-quarter from a weak 4Q24. The CIR is expected to trend higher, around 41%, compared to 37.1% in 1Q24, following the completion of the 100% stake acquisition of PT Bank Commonwealth in May 2024. This acquisition contributes to the 7.6% year-over-year decline in 1Q25F overall net profit compared to the record-high net profit in 1Q24. [[1]]

FY25F Guidance Reassessment

OCBC’s initial FY25F guidance, including a NIM of approximately 2% (-20bp year-over-year), mid-single-digit loan growth, a low-40% CIR, and 20-25bp in credit costs, was considered conservative. However, this guidance is being revisited due to ongoing trade tensions between the US and its trade partners, which could soften the macroeconomic outlook for FY25F. The FY25F net profit forecast has been lowered by 5.2% to reflect more muted loan growth (+2.2% year-over-year) and higher credit costs of 25bp (from 22bp previously). This revision cascades into 4.9%/5.1% declines in FY26F/27F EPS. [[1]]

Investment Recommendation

The downgrade to “Hold” reflects concerns that new assumptions translate to a 2.3% earnings decline year-over-year in FY25F. The GGM-based TP is lowered to S\$17.20, taking into account the downward EPS revision and a lower return on equity (ROE) assumption of 12.5% from 13.5% previously. Upside risks include exceptional mark-to-market gains from investment securities under Great Eastern and stronger-than-expected growth of wealth management fees. Downside risks include more drastic-than-expected US Fed Funds rate cuts, resulting in further compression in NIMs, as well as lowered FY25F guidance. [[1]]

Key Changes in This Note

* Change in covering analyst to Tay Wee Kuang.
* Reduced FY25F EPS by 5.2%. [[1]]
* Reduced FY26F EPS by 4.9%. [[1]]
* Reduced FY27F EPS by 5.1%. [[1]]
* Lowered ROE assumption for GGM valuation model from 13.5% to 12.5% to account for earnings uncertainty amidst a softer global economic outlook. [[1]]

Major Shareholders

* Selat Pte Ltd: 11.0% [[1]]
* Lee Foundation Singapore: 4.3% [[1]]
* Singapore Investments (Pte) Ltd: 3.8% [[1]]

Financial Summary

Financial Summary Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F
Net Interest Income (S\$m) 9,645 9,755 9,644 9,879 10,183
Total Non-Interest Income (S\$m) 3,862 4,718 4,988 5,266 5,564
Operating Revenue (S\$m) 13,507 14,473 14,632 15,145 15,748
Total Provision Charges (S\$m) (733.0) (690.0) (806.0) (768.4) (844.0)
Net Profit (S\$m) 7,021 7,587 7,412 7,724 8,010
Core EPS (S\$) 1.56 1.68 1.64 1.71 1.77
Core EPS Growth 27.1% 8.1% (2.3%) 4.2% 3.7%
FD Core P/E (x) 10.53 9.75 9.98 9.57 9.23
DPS (S\$) 0.82 1.01 1.05 1.08 0.95
Dividend Yield 5.01% 6.17% 6.41% 6.59% 5.80%
BVPS (S\$) 11.64 12.51 13.10 13.73 14.55
P/BV (x) 1.41 1.31 1.25 1.19 1.13
ROE 13.5% 13.9% 12.8% 12.8% 12.5%
% Change In Core EPS Estimates (5.22%) (4.94%) (5.13%)
EPS/Consensus EPS (x) 0.99 1.01 1.01

Key Abbreviations

* NII: Net interest income [[2]]
* NIM: Net interest margin [[2]]
* Non-II: Non-interest income [[2]]
* CASA: Current account/savings account [[2]]
* SORA: Singapore Overnight Rate Average [[2]]
* LDR: Loan-to-deposit ratio [[2]]
* CIR: Cost-to-income ratio [[2]]
* SP: Specific provisions [[2]]
* GP: General provisions [[2]]

Earnings Changes

FY25F FY26F FY27F FY25F FY26F FY27F FY25F FY26F FY27F
New Old % chg
NIM (%) 2.05% 2.01% 1.97% 2.06% 2.02% 1.98% -1bp -1bp -1bp
Net loan growth (%) 2.2% 5.2% 5.3% 5.0% 5.2% 5.4% -2.8%pt +0.1%pt +0.1%pt
NII (S\$m) 9,644 9,879 10,183 9,878 10,196 10,523 -2.4% -3.1% -3.2%
Non-NII (S\$m) 4,988 5,266 5,564 5,150 5,445 5,760 -3.1% -3.3% -3.4%
Operating expenses (S\$m) 6,048 6,281 6,524 6,048 6,281 6,524 0.0% 0.0% 0.0%
Cost-to-income (%) 41.3% 41.5% 41.4% 40.2% 40.2% 40.1% +1.1%pt +1.3%pt +1.4%pt
Provisions (S\$m) 806 768 844 719 790 868 12.1% -2.7% -2.8%
Net profit (S\$m) 7,412 7,724 8,010 7,821 8,125 8,443 -5.2% -4.9% -5.1%
EPS (Scts) 165 172 178 174 181 188 -5.2% -4.9% -5.1%

GGM Valuation

GGM valuation
COE 10.0%
Sustainable ROE 12.5%
LTG 2.0%
(ROE-LTG) – [a] 10.5%
(COE – LTG) – [b] 8.0%
Target P/BV (x) – [a]/[b] 1.31
FY25F BV (S\$) 13.17
Target price (S\$) 17.20

Singapore Banks Quarterly Earnings Summary

DBS OCBC UOB
1Q25F 1Q24 yoy 4Q24 qoq 1Q25F 1Q24 yoy 4Q24 qoq 1Q25F 1Q24 yoy 4Q24 qoq
NII (S\$m) 3,550 3,505 1.3% 3,728 -4.8% 2,347 2,437 -3.7% 2,455 -4.4% 2,419 2,362 2.4% 2,451 -1.3%
Non-II (S\$m) 2,050 2,052 -0.1% 1,777 15.4% 1,230 1,189 3.4% 961 28.0% 1,270 1,161 9.4% 782 62.4%
Fees (S\$m) 1,050 1,043 0.7% 968 8.5% 515 479 7.5% 517 -0.4% 650 580 12.1% 567 14.6%
Wealth management (S\$m) 580 536 8.2% 520 11.5% 250 228 9.6% 246 1.6% 190 164 15.9% 178 6.7%
Treasury income (S\$m) 1,000 1,009 -0.9% 809 23.6% 465 421 10.5% 343 35.6% 570 522 9.2% 367 55.3%
PPOP(S\$m) 3,411 3,478 -1.9% 3,110 9.7% 2,111 2,280 -7.4% 1,856 13.7% 2,139 2,048 4.5% 1,903 12.4%
Loan loss provisions (S\$m) (220) (135) 63.0% (209) 5.3% (201) (169) 19.2% (208) -3.1% (319) (163) 96.0% (227) 40.7%
Core net profit (S\$m) 2,772 2,961 -6.4% 2,622 5.7% 1,831 1,982 -7.6% 1,687 8.5% 1,562 1,487 5.1% 1,523 2.6%
NIM 2.10% 2.14% -4 bp 2.15% -5 bp 2.11% 2.27% -16 bp 2.15% -4 bp 2.02% 2.02% 0 bp 2.02% 0 bp
Cost-income ratio 39.0% 37.4% +1.6% pts 42.7% -3.7% pts 41.0% 37.1% +3.9% pts 45.67% -4.7% pts 42.0% 41.9% +0.1% pts 45.0% -3.0% pts
Credit costs (bp, calculated) 21 13 +8 bp 19 +2 bp 25 23 +2 bp 27 -2 bp 38 23 +15 bp 27 +11 bp

Potential Adjustments to FY25F Guidance for Singapore Banks

DBS OCBC UOB
Prev. FY25F Risk to adjustments Prev. FY25F Risk to adjustments Prev. FY25F Risk to adjustments
NII Slight yoy growth MODERATE N.A. N.A. N.A. N.A.
Total income N.A. N.A. N.A. N.A. Growth yoy LOW
Fee income N.A. N.A. N.A. N.A. Double-digit growth MODERATE
Pretax profit (S\$) Flat yoy MODERATE N.A. N.A. N.A. N.A.
NIM Slight yoy decline (FY24: 2.13%) LOW c.2% (FY24: 2.20%) LOW N.A. N.A.
Loan growth Slight yoy growth MODERATE Mid-single-digit HIGH High single-digit HIGH
Cost-income ratio Low-40% LOW Low-40% LOW c.42% LOW
Credit costs SPs: 17-20 bps MODERATE Total: 20 – 25 bps MODERATE SPs: 25 – 30 bps HIGH

Sector Comparison

Company Bbg Ticker Recom. Price (local) Tgt Price (local) Mkt Cap (US\$ m) 3-year EPS CAGR (%) P/BV (x) Recurr. ROE (%) P/PPOPS (x) Div Yield (%)
CY25F CY26F CY27F CY25F CY26F CY27F CY25F CY26F CY27F CY25F CY26F CY27F CY25F CY26F CY27F
DBS Group DBS SP Hold 41.85 43.10 90,824 0.8% 1.73 1.68 1.65 16.4% 16.3% 16.1% 8.7 8.6 8.5 7.3% 7.9% 8.5%
OCBC OCBC SP Hold 16.38 17.20 56,312 2.5% 1.25 1.19 1.13 12.6% 12.8% 12.5% 8.7 8.4 8.1 6.4% 6.6% 5.8%
United Overseas Bank UOB SP Add 35.54 38.80 45,380 6.9% 1.15 1.08 1.01 12.1% 13.0% 13.1% 6.9 6.5 6.1 7.0% 6.0% 6.5%
Singapore average 2.9% 1.40 1.34 1.28 13.9% 14.2% 14.0% 8.2 7.9 7.6 7.0% 7.1% 7.2%
Bank Central Asia BBCA IJ Add 8,500 12,350 62,149 6.3% 3.72 3.41 3.14 21.7% 21.4% 21.3% 13.8 12.8 11.7 3.6% 3.9% 4.2%
Bank Jago ARTO IJ Add 1,735 3,000 1,426 na 2.73 2.58 na 4.2% 7.3% na 22.9 13.3 na 0.2% 0.6% na
Bank Mandiri BMRI IJ Add 4,720 6,500 26,129 7.9% 1.43 1.31 1.20 19.2% 19.5% 19.9% 4.5 4.0 3.6 7.7% 8.5% 9.5%
Bank Rakyat Indonesia BBRI IJ Add 3,630 4,900 32,631 5.8% 1.66 1.58 1.50 17.7% 19.4% 20.5% 4.6 4.3 3.9 8.9% 10.2% 11.3%
Bank Tabungan Negara BBTN IJ Add 965.0 1,500 803.3 na 0.39 0.35 na 10.5% 12.1% na 1.6 1.3 na 5.2% 6.6% na
Bank Tabungan Pensiunan Nasional Syariah BTPS IJ Hold 975.0 885.0 445.5 na 0.75 0.70 na 13.4% 14.5% na 2.7 2.5 na 7.7% 9.5% na
Indonesia average na 2.10 1.94 na 18.9% 19.6% na 6.7 6.1 na 5.9% 6.6% na
Affin Bank Berhad ABANK MK Reduce 2.70 2.76 1,477 7.2% 0.55 0.53 0.51 4.4% 4.6% 5.0% 8.4 7.5 6.9 3.2% 3.4% 3.8%
Alliance Bank Malaysia Berhad ABMB MK Hold 4.35 5.27 1,535 8.5% 0.82 0.78 0.74 10.2% 10.4% 10.1% 5.4 5.0 4.9 6.1% 6.5% 6.7%
AMMB Holdings AMM MK Add 5.05 6.39 3,803 8.1% 0.77 0.73 0.68 9.7% 10.0% 10.0% 6.0 5.4 5.1 4.9% 5.3% 5.6%
Bank Islam Malaysia Bhd BIMB MK Add 2.42 3.13 1,250 8.6% 0.68 0.65 0.63 7.9% 8.1% 8.3% 5.1 4.8 4.6 6.8% 7.3% 7.8%
Hong Leong Bank HLBK MK Add 19.54 31.40 9,655 8.3% 1.03 0.96 0.89 11.3% 11.4% 11.4% 11.0 10.5 9.7 4.3% 4.6% 5.0%
Malayan Banking Bhd MAY MK Add 9.95 12.80 27,400 6.8% 1.11 1.04 0.98 10.7% 10.2% 10.0% 7.8 7.2 6.9 6.5% 6.7% 7.0%
Public Bank Bhd PBK MK Add 4.37 5.81 19,335 6.6% 1.35 1.28 1.21 12.3% 12.2% 12.3% 8.5 7.9 7.6 5.2% 5.6% 5.9%
RHB Bank Bhd RHBBANK MK Add 6.50 7.25 6,459 8.5% 0.82 0.78 0.74 9.6% 10.3% 10.5% 6.0 5.4 5.0 6.8% 7.7% 8.2%
Malaysia average 7.4% 1.05 0.99 0.93 10.6% 10.5% 10.5% 7.8 7.2 6.9 5.7% 6.1% 6.4%
Bangkok Bank BBL TB Add 142.0 170.0 8,136 3.6% 0.47 0.44 0.42 7.4% 7.3% 7.6% 3.1 3.1 2.9 6.3% 6.4% 7.0%
Kasikornbank KBANK TB Add 149.0 184.0 10,596 6.0% 0.60 0.58 0.55 7.4% 8.3% 8.8% 3.5 3.3 3.1 6.0% 7.0% 7.7%
Kiatnakin Phatra Bank KKP TB Hold 49.50 52.00 1,230 9.0% 0.64 0.61 0.59 7.4% 7.8% 8.8% 3.9 3.9 3.6 5.8% 6.2% 7.3%
Krung Thai Bank KTB TB Add 20.10 25.00 8,432 2.5% 0.61 0.58 0.55 8.0% 8.7% 9.0% 3.4 3.2 3.1 6.4% 7.2% 7.8%
Muangthai Capital MTC TB Add 43.50 54.00 2,768 22.1% 2.12 1.79 1.52 17.2% 17.9% 17.7% 6.8 5.8 5.1 0.8% 0.9% 1.1%
SCB X SCB TB Add 112.0 130.0 11,319 4.5% 0.76 0.75 0.73 8.3% 8.5% 9.3% 4.0 3.9 3.7 8.8% 9.0% 10.1%
Srisawad Corporation SAWAD TB Hold 31.25 34.00 1,417 5.3% 1.36 1.23 1.10 13.2% 13.6% 14.7% 5.8 5.3 4.7 3.2% 3.2% 3.2%
Tisco Financial Group TISCO TB Hold 99.75 99.00 2,398 0.3% 1.81 1.77 1.73 14.7% 14.6% 14.4% 8.0 7.6 7.5 6.9% 6.9% 6.9%
TMBThanachart Bank TTB TB Hold 1.81 1.86 5,275 2.2% 0.72 0.70 0.68 8.4% 8.0% 8.3% 4.9 4.9 4.8 7.6% 7.4% 7.9%
Thailand average 4.7% 0.67 0.65 0.62 8.1% 8.5% 9.0% 3.9 3.7 3.6 6.6% 7.0% 7.6%

ESG Analysis of OCBC

OCBC’s ESG performance, as evaluated by LSEG, reveals a

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