Broker's take: UOB Kay Hian keeps 'buy' on OCBC ahead of results

UOB Kay Hian maintained its "buy" call on OCBC Bank on Friday, as it foresees higher loan growth and net profit when the lender announces its third-quarter results on Oct 26.

Predicting a third-quarter net profit increase of 1.6 per cent to S$958 million, the broker set its target price for the stock at S$13.38. That represents an 18.9 per cent upside over the stock's S$11.25 price as at 10.40am.

Trade finance, residential mortgages and investment loans for overseas expansion should support healthy loan growth of 1.5 per cent, the broker said. It also noted that the exchange rate for the renminbi has stabilised, revitalising the demand for US dollar-denominated trade finance facilities from Chinese companies.

Additionally, OCBC's net interest margin (NIM) should edge higher gradually, UOB Kay Hian said, while growth in fee income may moderate to 12 per cent year-on-year to S$479 million, with healthy growth from trade and credit cards.

However, the broker is expecting bank provisions to increase 6 per cent quarter-on-quarter to S$180 million due to a deterioration in the valuation of OCBC's collaterals. Although non-performing loan rates may deteriorate in the oil and gas sector, asset quality remains stable for other industries.