Date of Report: 3 October 2024
Broker: UOB Kay Hian

Dividend Policy Commitment

Oversea-Chinese Banking Corp (OCBC) is committed to maintaining a dividend payout ratio of 50% going forward. This commitment is expected to provide an attractive dividend yield of 6.1% for the year 2025.

Strategic Revenue Growth Initiatives

Management aims to deliver an incremental revenue of S$3 billion cumulatively over the period from 2023 to 2025. This will be driven by four key growth pillars:

1. Asian wealth
2. Trade and investment flows
3. New economy
4. Sustainable financing

Financial Performance and Capitalization

OCBC has positioned itself as the most well-capitalized bank in Singapore, with a Common Equity Tier 1 (CET-1) Capital Adequacy Ratio (CAR) of 15.5% as of the second quarter of 2024. This high level of capitalization provides the bank with the potential to deploy surplus capital for generating inorganic growth opportunities.

Market Outlook and Investment Strategy

The bank’s strategic initiatives aim to enhance its return on equity (ROE), targeting a range of 12-13%, with an additional 1 percentage point contribution expected from the incremental revenue of S$3 billion. The bank has successfully achieved its strategic targets for 2023, which reflects its effective management and operational capabilities.

Buy Recommendation and Target Price

UOB Kay Hian maintains a “BUY” recommendation for OCBC, with a target price of S$18.50. This target price is derived from a price-to-book (P/B) ratio of 1.38 for the year 2025, using the Gordon Growth Model with a return on equity of 12.4%, cost of equity of 9.0%, and growth rate of 0.0%.