OCBC reports higher profit and dividends - Our Quick Take

Summary of OCBC's 2Q24 results

OCBC reported its results and dividends for the second quarter of 2024 (2Q24).

• 2Q24 net profit grew 13.7% year-on-year, but this was compared with a fairly weaker 2Q23 when higher credit provisions were made. 

• On a quarterly trend, 2Q24 net profit came in 1.9% lower than 1Q24 at S$1,944m, due to higher expenses incurred. Total income was flat quarter-on-quarter. 

• Interim dividend was raised by 10% to 44 cents, at an unchanged payout ratio of 50%. 

Notwithstanding the 1% increase in gross loans from 1Q24, net interest income dipped 0.3% on lower net interest margin (NIM).  NIM fell for a second quarter to 2.20%, by 0.07% point, a steeper decline than 1Q’s 0.02% point. Loan yields have tightened and the bank is focused on high-quality assets which tend to be lower yielding.

1H23 NIM was 2.23%, and management keeps its NIM target for FY24 at 2.20-2.25%. 

Performance was mixed in the non-interest income segment. Though wealth management AUM added S$6bn this quarter to S$279b, wealth management fee fell 7.0% in this quarter from 1Q24. Credit card fees contracted by 12.0% to S$66m. Gains in loans-related, brokerage and fund management fees and other income helped to prop up non-interest income.

Operating expenses rose 2.0% quarter-on-quarter, with cost-to-income ratio at 37.8% in 2Q24 (1Q24: 37.1%). But this is still lower than 2Q23’s 38.5%.

Asset quality remains healthy. Credit provisions reduced by 14.8% quarter-on-quarter, with strong recoveries in non-performing assets (NPA) and lower new NPA formation. Credit cost was 15 basis points in this quarter (1Q24: 16 basis points), with a 1 basis point write back for non-impaired assets. Non-performing loans ratio fell to 0.9% (1Q24: 1.0%).

CET1 ratio was 15.5% (Mar-24: 16.2%). ROE remains strong at an annualized 14.2%, though a slight dip from 1Q24’s 14.7%.

Beansprout's take on OCBC's 2Q24 results

Investors are likely to view the results as neutral, with a higher dividend and a moderate profit decline.

OCBC's net profit in FY24 is likely to be higher year-on-year, due to lower credit costs compared to FY23, and higher fee income with a bigger wealth management AUM. 

However, we believe 2H24 net profit may slow down from 1H24 due to lower net interest income. Management is guiding low single-digit loan growth and NIM at 2.20%-2.25% for FY24. OCBC's NIM has fallen from 2.28% in FY23 to 2.27% in 1Q24 and 2.20% in 2Q24. 

OCBC is trading at a price-to-book valuation of 1.2x, based on a NAV as at end-Jun of S$12.29 per share. 

OCBC is expected to offer a dividend yield of 5.7%, above the dividend yield of 5.3% for UOB, but below the dividend yield of 5.9% for DBS.

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Related links:

• OCBC share price and share price target
• OCBC dividend forecast and dividend history

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