OCBC reports record net profit. Here's what you need to know

What happened?

I saw quite a number of questions about OCBC in the Beansprout community today.

The company reported a record quarterly net profit of S$1.98 billion in the first quarter of 2024, 5.5% higher year-on-year. 

At the same time, OCBC also announced a $1.4 billion offer to take Great Eastern Holdings private.

Following these announcements, OCBC’s share price rose to reach $14.12, close to its 1-year high.

Like DBS and UOB, the share price of OCBC has performed well so far this year. 

Let us dive deeper into OCBC’s first quarter results to find out more about the company’s performance and prospects. 

What you need to know about OCBC's first quarter results

#1 Lower interest income compared to previous quarter due to higher funding cost

Net interest income was 1.0% lower than 4Q23, mainly due to higher cost of fund. While loans to customers grew 1.3%, net interest margin (NIM) fell to 2.27%, from 2.29% in 4Q23. 

The proportion of funds from current account and savings account, which are lower-cost source of funds, fell to 47.3%, compared with 48.7% in 4Q23.

Management guided that its NIM might land at higher end of 2.2% to 2.25% in 2024 if rate cuts are less than expected. 

#2 Higher income from insurance and trading

Non-interest income rose strongly by 46.6% over 4Q23, led by insurance and trading income largely derived from 88.4%-owned Great Eastern Holdings. 

Both segments benefitted from buoyant equity markets, which lifted asset values and customers’ investment appetites. 

In the same vein, wealth management fees also rose by 16.9%, with asset under management adding another S$10 billion to reach S$273 billion.

Out of this, S$6 billion were new money, and the rest from capital gains.

#3 Provision taken for impaired loans

Overall credit cost of 16 basis points is lower than 4Q23’s 21 basis points, and in line with management’s guidance of 20 – 25 basis points for the year. 

However, this includes an 18 basis point provisions for impaired loans. There was none in 4Q23. 

Some S$239 million in corporate non-performing assets was added in the quarter. Management maintained that it does not see any systemic risks.

Overall non-performing loans remains at 1.0% of total loans, and OCBC has adequate provisions amounting to 146% of total non-performing assets.

#4 Lower cost-to-income ratio of 37.1% 

OCBC reported a decline in its cost-to-income ratio to 37.1% from 40.0% in 4Q23. 

Management, however, guided that this could rise to 40 – 45% for the full year.

#5 – Guidance maintained 

Management’s guidance has been broadly maintained:

• Net interest margin would land at the higher end of 2.2-2.25% if rate cuts are less than expected

• Loans to grow at low single-digit

• Credit costs of between 20 to 25 basis points

• A 50% dividend payout ratio

What would Beansprout do?

Overall, the improvement in net income of OCBC was driven by strong growth in income from insurance and trading at Great Eastern Holdings. OCBC’s wealth management business also performed well.

However, we will be watchful of the increase in corporate non-performing assets in the quarter, and make sure that it will not be recurring. 

With the growth in profit, OCBC’s return on equity (ROE) has increased to 14.7% in the first quarter from 13.7% achieved for FY23. 

However, management has kept to its target of 50% dividend payout. This was due to a preference for focusing on utilising its capital for acquisitions to hit its target of S$3 billion in incremental revenue by 2025. 

You can find out how much dividends you would have received as a shareholder of OCBC in the past 12 months with the calculator below:

Based on the latest consensus forecasts, OCBC  is expected to offer a dividend yield of 6.0%.

Its dividend yield is higher than the dividend yield of 5.6% offered by UOB, but slightly lower than the dividend yield of 6.1% offered by DBS. 

For dividend investors, DBS might also be worth looking at given its slightly higher dividend yield. 

We will be sharing more about OCBC's offer to privatise Great Eastern Holdings in our next article, and you can join the Beansprout Telegram group to stay updated when it is published. 

If you are interested to learn about income opportunities in the Singapore market, join our upcoming webinar on 14 May 2024 to find out how you can identify these opportunities. 

Related links:

• OCBC share price and analysis
• OCBC dividend history