Review of OCBC FY2021 Results

Final dividend declared: $0.28 per share

 

Full year dividend: $0.53 per share

 

Dividend payout date: 20th May 2022

 

Dividend yield on my cost: ~6%

 

Overall an acceptable set of results from OCBC for FY21. We can't possibly say bad to 35% increase in net profit and resumption of full year dividend to pre-Covid level right?

 

 

However delving deeper into the numbers there are a few observations that I would like to highlight as follows.

 

Net Profit

 

Propped up by the non-interest income, contributions from associates and lower allowances catered for loans.

 

Net Interest Income

 

Fell slightly which is expected due to the fall in NIM. Looking from another angle, this segment should perform better next year due to the rising interest rates and coming off from a low base this year.

 

Non-interest Income

 

Traditional cash cow from Great Eastern Holdings saves the day again with a 63% YoY increase.

 

Associates

 

A big part of the jump in overall net profit comes from the associates which contributed a 35% increase in income YoY.

 

However not much is mentioned about the associates. I dug around and managed to find some information on who are these entities from last year's annual report.

 

Lower Allowances

 

There is a 57% drop in allowances catered for FY21 as compared to FY20.

 

However looking at the details, there is a 180% and 92% increase in allowances for impaired loans in Malaysia and Greater China respectively, suggesting sustained risks in these markets.

While the Malaysia market accounts for about 9.5% of the total loans to customers by geography, a greater concern lies with the Greater China market which accounts for 25.6% of the total loans by geography.

This is something to take note of.

 

Non-performing Loan Ratio

 

Remains at 1.5%

 

Non-performing Assets

 

Increased 8% YoY

 

Capital Adequacy Ratios

 

While the business is doing fine, I also want to know whether my money is safe in the bank.

 

OCBC Common Equity Tier 1 (CET1): 15.5% (vs regulatory minimum of 6.5%)

 

OCBC Tier 1: 16% (vs regulatory minimum of 8%)

 

OCBC Total Capital Adequacy Ratio (Total CAR): 17.6% (vs regulatory minimum of 10%)

Earnings Per Share

$1.07 (FY20: $0.80)

Return On Equity

9.6% (FY20: 7.6%)

Net Asset Value Per Share

$11.46 (FY20: $10.82)

 

Conclusion

 

With the expected improvement in the net interest income coupled with continual strong performance from the non-interest income segment, I believe OCBC should report a much better set of results in the next full year report.

 

Having said that, there lies certain areas of concern where there is room for improvement.

 

Among the different subsidiaries - GEH, OCBC Malaysia, OCBC NISP and OCBC Wing Hang; all posted 17% - 20% increase in net profit except for OCBC Wing Hang Hong Kong which suffered a 19% drop in net profit YoY.

This further proved the challenges faced by OCBC in the Greater China which is their third largest market by profit contribution.

 

Also, although the EPS and ROE has improved YoY, they are still lower than the figures of FY19 (pre-Covid).

 

Earlier in the post I mentioned that this is an acceptable set of full year results for OCBC. However breaking down into Q4, their result actually pales in comparison to DBS and UOB.

The market promptly sent the share price down this morning although it has somewhat recovered by noon.

 

OCBC has brought the full year dividend back to $0.53 per share - a level last seen before Covid. This represents slightly below 50% of the net profit after tax.

OCBC has always been prudent with the dividend payout ratio over the years. They are in fact, the most prudent among the three local banks. However if the new CEO can increase this payout ratio slightly to the levels offered by DBS and UOB, I'm pretty sure it will have a corresponding effect on the share price.

 

Last but not least, the leadership acumen of Ms Helen Wong will be important in steering OCBC forward especially with her background in Greater China. I will be looking forward to her first full year results as Group CEO next year.

Overall I am satisfied with the full year performance of FY21 and I am in no hurry to sell my current holdings. In fact I will add if the opportunities arise.