ANALYSTS were split on the scale of impact of OCBC’s capital return plan announced on Wednesday (Feb 26), despite agreeing that it was a “welcome addition” and lifting their price targets for the counter.
The bank on Wednesday posted higher earnings for its fourth quarter and full year ended December 2024, and announced its intention to return S$2.5 billion of capital to shareholders over two years via special dividends and share buybacks. Year on year, OCBC’s net profit rose 4 per cent to S$1.7 billion for Q4, and 8 per cent to a record S$7.6 billion for FY2024.
RHB on Thursday lifted its target price for OCBC to S$19.10 from S$16.80 previously, and upgraded its call on the counter to “buy” from “neutral”. Its research team called the capital return plan a “welcome addition” to its investment thesis for the stock, as it returns “more to shareholders”.
“Together with the ordinary dividend per share (DPS), investors can expect total dividend payouts of 60 per cent in FY2024 and FY2025,” it said.
“This is… a good defensive option given (OCBC’s) solid asset quality and capital levels, and connectivity play, where it is well-poised to benefit from supply chain shifts.”
After factoring in the capital distribution’s DPS, the research team raised its FY2025 DPS forecast to S$1.01, from S$0.89 previously. It also lifted its estimates for OCBC’s profit after tax and minority interests for FY2025 and FY2026 by 1 per cent.
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Similarly, Maybank on Wednesday lifted its target price for the counter to S$18.55 from S$17.89, on confidence that the lender’s “One OCBC strategy” is delivering “strong” synergies.
Maybank analyst Thilan Wickramasinghe said: “The group is focused on leveraging its cross-border platform to drive growth. Its ‘One OCBC’ strategy is delivering synergies and should support interest and non-interest income upside as supply chains shift south.”
He noted that OCBC outperformed other banks in loan growth as it recorded “significant expansion” FY2024.
“Importantly, Greater China credit growth turned positive after two years of declines. Malaysia also saw punchy expansion,” he added.
“We believe this displays the synergies of the ‘One OCBC’ strategic initiatives. It is an advantage amid supply chain relocations and the establishment of the Johor-Singapore Special Economic Zone.”
Despite the bullish outlook, however, he downgraded his call on the counter to “hold”, on expectations that the capital return exercise – which he said was “good”, but “not great” – will yield limited impact.
“We estimate S$1.5 billion could be returned as special dividends and the rest as share buybacks. This implies an FY2025 estimated yield of 5.9 per cent versus UOB’s 6.5 per cent,” the Maybank analyst said.
“Cancelling shares should be 1 per cent earnings per share accretive, versus UOB’s 3 per cent.”
As OCBC’s capital return plans lag peers in terms of dividend yields and earnings per share accretion, he prefers UOB for “regional growth and larger capital returns”.
