UOBKH - SP: OCBC 1Q12 Flash Note - Higher fee income, lower provisioning

Stock Name: OCBC Bk
Company Name: OVERSEA-CHINESE BANKING CORP

Research House: UOB KayHian

Price Call: BUY

Target Price: 11.98

OCBC BUY
Price/Target: S$9.58/S$11.98 Mkt Cap: US$26,436m Daily Vol: US$29.5m 1-Yr Hi/Lo: S$9.88/S$7.68

2Q12: Higher fee income, lower provisioning

Year to 31 Dec (S$m)	2Q12	yoy %	qoq %	Remarks
Net Interest Income	931	12.6	-2.1	NIM contracted by 9bp.
Non-Interest Income	596	1.7	-29.6	Fee income higher-than-anticipated.
Total Income	1527	8.1	-15.0
Operating Expense	(661)	7.0	5.8
Pre-Provision Profit	866	8.9	-26.1
Provisions	(38)	-32.1	-60.4	NPL ratio declined marginally 0.9%.
Net Profit	648	12.3	-22.1	1Q12 earnings included S$56m gain from disposal of a property in Melbourne.
EPS (¢)	17.5	10.1	-27.7
BVPS (S$)	6.33	8.0	0.2
Key Ratios (%):	2Q12	1Q12	2Q11
Net Interest Margin	1.77	1.86	1.87	More placements in interbank.
Loan/Deposit Ratio	85.3	84.4	89.1
Core Equity Tier-1 CAR	11.1	11.6	11.9
NPL Ratio	0.9	1.0	0.8

• OCBC report net profit of S$648m (-22% qoq and +12% yoy) for 2Q12, ahead of our forecast of S$608m and consensus estimate of S$616m. Upside surprises came from higher fee income and lower provisioning.
• Adopting a conservative posture:Loan grew 2.8% qoq and 14% yoy, driven by 3.8% qoq expansion for Singapore and 10.3% qoq expansion for Indonesia. Net interest margin contracted 9bp on a sequential basis to 1.77% as deposits collected were largely placed out in the interbank market.
• Growth from non-interest income:Fee income expanded 16% qoq and 6% yoy driven by wealth management, loans related fees and investment banking. Life insurance contribution income of S$71m while trading income made positive contribution of S$75m.
• Muted provisioning. Total provisions were lower at S$38m compared to S$96m in 1Q12. Specific provisions were muted at only S$13m. This is not surprising given the large increase in NPLs that are not overdue, especially during the CEO transition period. NPL ratio declined slightly from 1.0% to 0.9% indicating resilient asset quality.
• OCBC has declared interim dividend of 16 cents/share, higher than 15 cents/share declared last year. The scrip dividend scheme does not apply to the interim dividend.