OCBC profit rises by 4% and announces special dividend: Our Quick Take

OCBC 4Q24 earnings highlights

OCBC announced its earnings for the fourth quarter of 2024 (4Q24). Key highlights include: 

• Net profit of S$1.69 billion in 4Q24, 4% higher compared to the previous year, but below consensus forecasts of S$1.78 billion. Net profit reached record S$6.0 billion in FY24, up 6% year-on-year

• Final dividend of S$0.41 per share, slightly lower compared to the previous year. Special dividend of S$0.16 per share.

• Announced plans to return S$2.5 billion of capital to shareholders over two years via special dividends and share buybacks.

OCBC's total income for the fourth quarter of 2024 rose to S$3.42 billion, marking a 4% increase from the same period last year. 

Net Interest Income slightly decreased by 1% year-over-year to S$2.46 billion. The decline is attributed to increased funding costs, which offset the benefits from higher loan amounts. 

OCBC's net interest margin fell to 2.15% in 4Q24, marking consecutive quarters of decline from 2.29% in 4Q23 and 2.15% in 4Q24.

Non-interest income surged by 18% from the previous year, reaching S$961 million. This rise was supported by:

• Trading Income: Enhanced by 37% to S$303 million, driven by strong customer activity and market dynamics.
• Insurance Income: Increased by 15% to S$101 million, reflecting better performance in underlying insurance operations and improved claims experience.
• Fees and Commissions: Increased by 12%, totaling S$517 million, largely driven by wealth management and loan-related fees.

As can be seen from the chart below, OCBC's wealth management fee income grew to S$246 million in 4Q24 from S$195 million in 4Q23. 

Wealth management fee income in 4Q24 was also slightly higher compared to 3Q24.

OCBC experienced a 19% rise in operating expenses, amounting to S$1.56 billion. The increase is led by higher staff costs associated with a rise in headcount, variable compensation and annual salary increments. 

Overall, its cost-to-income ratio spiked to 45.7% in 4Q24 from 40.0% in 4Q23 and 38.5% in 3Q24.

The board has proposed a final ordinary dividend of 41 cents per share for FY24, slightly lower than 42 cents per share for FY23. 

This would bring the total ordinary dividend for FY24 to 85 cents per share with a payout ratio of 50%.

A special dividend of 16 cents per share is recommended, raising the total dividend payout for FY24 to 60% of net profit.

OCBC has also announced a strategic capital return plan totalling S$2.5 billion over the next two years, benefiting shareholders through both special dividends and share buybacks.

Find out how much dividends you will potentially receive as a shareholder of OCBC with the calculator below. Note that this is based on latest average forecasts of analysts, which may not have included the special dividends announced. 

Heading into 2025, OCBC expects a further decline in its net interest margin to about 2% from 2.20% in 2024. 

The decline in net interest margin is expected to be partly cushioned by mid-single digit loan growth. 

OCBC also expects its cost-to-income ratio in 2025 to be in 'low-40s', which will mark a further increase from the 39.7% in 2024. 

Beansprout’s Quick Take on OCBC earnings

OCBC's share price declined at the market open on 26 February, following the announcement of the results.

This likely reflects some disappointment in the earnings reported, coming through from the further decline in net interest margin and a spike in costs in 4Q24.

Also, OCBC's net interest income is expected to decline further, and cost-to-income ratio is expected to rise further in 2025 compared to 2024. 

On a more positive note, the announcement of the special dividend and share buyback programme may help to support OCBC's share price. 

Based on consensus earnings forecasts for 2025, and assuming a payout ratio of 60% (including ordinary and special dividends), OCBC may offer offer a potential total dividend of S$1.05 in 2025. 

This would represent a potential dividend yield of about 6.0%, based on its closing price of S$17.60 as of 25 February 2025.

This would bring OCBC's potential dividend yield to be comparable to UOB's expected dividend yield, but below DBS' expected dividend yield.  

OCBC currently trades at a price-to-book valuation of 1.43x, above its historical average of 0.93x. 

Related links:

• OCBC share price and share price target

• OCBC dividend forecast and dividend history

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