πππIn Singapore's competitive banking landscape, investors constantly debate which among the 3 blue chip banks offer the best value. While all 3 banks have delivered strong growth numbers in recent quarters, OCBC is seen as trading at lower valuation.
OCBC $ocbc bank(O39.SI)$
CGSI's downgrade stems from several key factors affecting OCBC 's near term performance. Their research highlights that OCBC' s earnings growth for FY2025 appears to be on "shaky ground". Specifically the bank's net interest income is projected to soften, partially driven by a further compression of its net interest margin (NIM) due to the US Federal Reserve rate cuts. This margin pressure along with an anticipated increase in the cost to income ratio from 37% to 41%, has raised concerns about OCBC's profitability in the coming quarter.
Is the downgrade justifiable?
Let's check out OCBC's Full Year 2024 earnings results reported on February 26. OCBC reported net profit of SGD 7.59 billion for FY 24, 8% higher compared to SGD 7.02 billion in FY 23.
OCBC's resilient performance demonstrated its strength of its well diversified business franchise of Banking, Wealth Management and Insurance. Group net profit was driven by robust income growth across all 3 key businesses and lower allowances. Total income surged above SGD 14 billion for the first time, fueled by record interest income and strong non interest income, propelled by a rise in wealth fees, a new high in trading income and an increase in insurance income. Asset quality remains sound with non performing loan ratio at 0.9%, an improvement from 1% a year earlier. In fact OCBC has the lowest non performing ratio among the 3 banks. DBS and UOB non performing ratio is 1.1% and 1.5% respectively.
With OCBC 's sustained earnings growth and strong capital position, the Board has announced a comprehensive approach to return SGD 2.5 billion of capital to shareholders over 2 years via special dividends and share buy backs. The capital return comprises of special dividends amounting to 10% of the Group's net profit for FY24 and FY25. The balance will be via share buybacks over 2 years subject to market conditions and regulatory approvals. Together with OCBC's target ordinary dividend payout ratio of 50%, the total dividend payout for FY24 and FY25 will amount to 60% annually.
For FY24, a final ordinary dividend of 41 cents per share is proposed, bringing the total ordinary dividend to 85 cents per share, or a payout ratio of 50%. The Board is also recommending a special dividend of 16 cents per share or payout ratio of 10%. This will bring the FY24 total dividend payout to 60% of net profit. The current dividend yield is 5.35%.
OCBC's strength compared to DBS and UOB lies in its robust growth in non interest income, particularly from trading income and insurance contributions. While all 3 banks saw improvements, OCBC 's growth in this area was the strongest at 26.5%. This indicates a more significant diversification of revenue sources beyond traditional lending.
OCBC is also expanding in Indonesia. In early 2024, OCBC' s Indonesian subsidiary PT Bank OCBC completed the acquisition of PT Bank Commonwealth Indonesia, a wholly owned subsidiary of Commonwealth Bank of Australia. This acquisition was completed in May 2024, giving OCBC Indonesia 100% ownership of PTBC. This acquisition brings more than 1.2 million PT Bank Commonwealth Indonesia customers to OCBC Indonesia.
OCBC is also intending to privatise Great Eastern because it gives the bank an added advantage over its peers. OCBC currently owns 93.7% of GE shares. At the latest AGM held in April 17 2025, OCBC said that it plans to seek GE's delisting from SGX if the public float is not met by May 25, the deadline given by SGX. GE is the top insurer in both Singapore and Malaysia with over 16 million customers, contributing more than USD 100 billion in Assets Under Management.
Despite the rating downgrade from CGSI, OCBC provides an attractive valuation as its Price to Book ratio is only 1.18x.
According to latest analysts reports, the OCBC remains a Buy with a Target Price ranging from SGD 14.40 to SGD 19.10.
Compared to the other Singapore banks, I like OCBC for its diversified business model which includes insurance, asset and wealth management and 2 banking licences - commercial banking and private banking. This diversification has allowed OCBC to amass over SGD 394 billion in assets under management.
At the last closing price of SGD 15.90, OCBC offers great value for money and has lots of exponential growth ahead. OCBC's attractive valuation is a compelling buy especially for dividend investors. In the short term, OCBC share price maybe volatile but its long term growth with rock solid balance sheet remains intact.
I have invested in OCBC since 2022 and it has rewarded me with great dividends and capital growth.
Investing is a marathon, not a sprint. Slow and Steady wins the race.
@Daily_Discussion @TigerStars @Tiger_SG @Tiger_comments @CaptainTiger @TigerClub
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