Will OCBC share price sink or swim? On 8 May 2020, OCBC announced a set of poor Q1 FY2020 business update that saw the number 2 bank in Singapore recording the worst financial performance among the three local banks. While COVID-19 pandemic had been cited by OCBC CEO as the culprit for the subpar performance, investors must be wondering how on earth did OCBC manage to fare so badly against the other two banks.
On a year-on-year basis, net profit plunged 43% to reach an abysmal $698 million. This is the lowest as compared to DBS ($1.17 billion) and UOB ($855 million). OCBC’s decline was also the biggest among the three local banks. Against this backdrop, OCBC share price should be sluggish for the foreseeable future.
Upon examining the business update, I noted two factors that led to the steep decline in net profit. First, contributions from Great Eastern Holdings collapsed 94% to reach a low of $18 million, vis-à-vis the $290 million profit contribution seen in Q1FY2019. Another factor was the huge spike of $370 million for allowances of non-impaired assets. The saving grace for OCBC share price was that its bread-and-butter, the net interest income, increased 6% to $1.63 billion.
What can float a boat can also sink it. While Great Eastern Holdings had provided OCBC an unassailable edge over DBS and UOB for decades, the volatile financial performances of the insurance company had wrecked OCBC share price in recent years.
The latest business update was certainly a bad start for OCBC bank and investors should brace themselves for more bad news to come. Indeed, the coming months will be more challenging for OCBC share price as Singapore economy sinks into deeper recession and negative oil prices lead to more non-performing loans. Is this really the beginning of the end for OCBC share price or will this counter fight to the very end? In this article, I will share my insights on the outlook of OCBC share price in 2020.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. In addition, I am vested in this counter (holding 1300 OCBC shares at $11.00).
OCBC share price in dark chapter
While OCBC delivered the worst first quarter financial performance among the three banks, it continued to hold the strongest balance sheet. As of March 2020, OCBC has CET-1 of 14.3%, higher than UOB’s 14.1% and DBS’ 13.9%. Nonetheless, being the strongest bank does not necessarily mean that OCBC share price will see light at end of tunnel soon.
The key question now is: amid the challenging operating environment, can OCBC management generate growth and returns on the back of such strong balance? The ROE could shape OCBC share price in the coming months as investors look for clues on how the bank would navigate through this dark chapter. To this end, I was shocked to note that the [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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