OCBC Investment Research Insights: A Deep Dive into Key Market Moves
Broker: OCBC Investment Research
Date of Report: 3rd December 2024
Bank of China (Hong Kong) – A Pillar of Resilient Growth
Bank of China (Hong Kong) emerges as a stalwart in the financial sector with robust earnings growth. The bank’s pre-provisions operating profit (PPOP) displayed a resilient momentum, with core earnings and operating profit increasing by 13% year-on-year over the first nine months of 2024. The third quarter saw an unexpected rise in adjusted net interest income (NII) and PPOP by 2% and 6% quarter-on-quarter, respectively. A modest expansion in net interest margin (NIM) was primarily due to strategic management of funding costs amidst a backdrop of a declining HIBOR.
The bank’s asset quality remains stable, with a non-performing loan (NPL) ratio increasing by a mere 5 basis points to 1.11% in the third quarter. Credit costs, however, saw a slight rise due to an updated expected credit loss model. Despite a reduction in loan growth, the outlook appears optimistic with potential improvements driven by China’s policy adjustments and proposed US Federal Reserve rate cuts. Bank of China (Hong Kong) is recommended as a ‘BUY’ with a fair value estimate of HKD30.50.
Singapore Post – Strategic Moves in the Australian Market
Singapore Post (SPOST) has embarked on a strategic divestment of its Australian business, selling it to Pacific Equity Partners for an enterprise value of AUD1.02 billion. This move is expected to yield a gain of SGD312.1 million. The proceeds are earmarked for reducing AUD-denominated debt and potentially disbursing a special dividend to shareholders. The sale is anticipated to conclude by March 2025, pending shareholder and regulatory approvals.
SPOST aims to enhance its financial position through meaningful deleveraging. This divestment is also a strategic pivot to refocus and strengthen its core business. Despite the uncertainty surrounding its future strategic direction post-divestment, SPOST’s fair value is maintained at SGD0.58, with a ‘HOLD’ recommendation.
ESG Updates: Bank of China (Hong Kong) and Singapore Post
Bank of China (Hong Kong) is leading in environmental risk management, although it trails peers in consumer protection. The bank’s business ethics framework is strong, featuring comprehensive data protection and whistleblower policies. Meanwhile, Singapore Post excels in corporate governance, with robust carbon mitigation initiatives, including fleet electrification.
Conclusion
The insights provided by OCBC Investment Research offer valuable guidance for investors. Bank of China (Hong Kong) stands out as a resilient financial entity with a strong growth trajectory, while Singapore Post’s strategic divestment is a calculated move to realign its business focus. These analyses underscore the importance of strategic foresight and robust risk management in navigating today’s dynamic market landscape.
