Brokers' take: RHB lowers OCBC target price on heightened scam risks, maintains 'buy'

Megan Cheah

Published Tue, Jan 25, 2022 · 03:48 AM

RHB has lowered its target price (TP) on OCBC O39 to S$14.80 from S$15.10 previously to reflect heightened risks faced by the banking industry.

The brokerage has maintained its "buy" call, with the new TP representing 4 per cent yield and a 20 per cent upside to OCBC's Monday (Jan 24) closing share price of S$12.30, said the team behind the report released on Tuesday.

Following the phishing scams impersonating the bank in December 2021 that cost customers S$8.5 million, analysts noted that OCBC has enhanced its security measures, including those announced by the Monetary Authority of Singapore and the Association of Banks in Singapore.

Although OCBC's online banking system was not hacked, RHB noted heightened risks from the "sophisticated scam attacks" faced by the banking industry.

As such, the research house has lowered its environmental, social and governance (ESG) score for OCBC to 3.20 from 3.30, translating to a lower ESG premium of 4 per cent compared to 6 per cent previously. This has also resulted in the lower target price, RHB added.

It however highlighted that the stock's intrinsic value remains unchanged at S$14.26, which is 1.16 times its price-to-book ratio. A key share price catalyst would come from the "imminent interest rate upcycle", it added.

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The research house continues to expect "steady" Q4 FY2021 results, with a projected net profit of around S$1.2 billion.

While this represents a 3 per cent dip in earnings from the previous quarter, RHB analysts believe underlying operations will remain healthy with stable asset quality. They attribute the decrease in expected overall earnings to seasonally lower wealth management fees and higher operating expenses.

With OCBC's treasury solutions arm anticipating a 3-4 times increase in US interest rates in 2022, RHB estimates net profit of the bank to be boosted by 12-13 per cent over 12 months, should the rate rise by 100 basis points (bps) to add S$800 million in net interest income for OCBC.

"For now, liquidity remains ample and there is no sign of any significant competition for deposits," said the research house.

RHB also believes the bank is on track to deliver high single-digit loan growth of an annualised 8.9 per cent for FY2021, boosted by the demand from the healthcare, transportation, logistic and data centre sectors, and green financing.

Its analysts are expecting the bank's quarterly core fee income to remain healthy despite lower Q4 sales, and noted that the bank hopes the higher credit cost of 33-67 bps for FY2021 will normalise to 20-25bps in FY2022.

Shares of OCBC closed at S$12.15, down 1.22 per cent or S$0.15, on Tuesday.

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