Brokers' take: RHB upgrades OCBC to 'buy'; Maybank KE, Jefferies raise target prices

RHB on Thursday upgraded OCBC to "buy" from "neutral", with a higher target price (TP) of S$12.50 from S$9.50 previously. At least two other research houses also raised their targets on the counter.

Maybank Kim Eng (Maybank KE), which has a "buy" call on OCBC, raised its target to S$12.74 from S$12.24.

Jefferies, which also has a "buy" call, raised its target S$12.50 from S$11.50.

RHB's upgrade follows an upward revision of its earnings estimates for FY2021 and FY2022 by 18 per cent and 11 per cent, respectively. Its new estimates assume lower credit costs and sustained net interest margins (NIMs).

RHB is also expecting a recovery in return on equity and higher dividends ahead. "These, we believe, will support a share price rerating," it said.

OCBC's FY2020 earnings beat the expectations of analysts at RHB, Maybank KE, Jefferies and CGS-CIMB.

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Maybank KE attributed this to "lower provisions, better net interest income and a tax write-back". It has hiked its projection for FY2021 and FY2022 earnings per share by 2 per cent each.

In its report, Maybank KE also highlighted OCBC's Greater China advances.

"We believe OCBC stands to benefit from North Asian recovery as well as North-South trade flows. Its incoming CEO's track record in China should also be complementary," Maybank KE said.

Helen Wong takes over from Samuel Tsien as chief executive in April 2021. Ms Wong had previously served as chief executive of HSBC in Greater China.

Jefferies, meanwhile, noted OCBC's removal of a scrip dividend discount as a suggestion of "possible upside to dividends".

OCBC's common equity tier-one ratio rose to 15.2 per cent in December 2020, Jefferies said, versus an ideal range of 12.5-13.5 per cent.

In light of this, Jefferies has raised its forecast for OCBC's FY2021 dividend to 48 Singapore cents from 41 Singapore cents. In FY2022, Jefferies expects the dividend to return to the pre-Covid level of 53 Singapore cents.

CGS-CIMB, too, revised its earnings estimates upwards - by 6.6 per cent for FY2021 and 5.5 per cent for FY2022.

But the brokerage believes OCBC's Q4 NIM expansion will be shortlived due to stiff pricing competition.

CGS-CIMB reiterated its "add" call, with an unchanged target price of S$12.52.

OCBC shares closed at S$11.07 on Thursday, up 22 cents or 2 per cent.