Just before the National Day long weekend (hope you’ve had a great one!), Overseas-Chinese Banking Corporation (SGX:O39) released its financial results for the first half of the financial year 2020 ended 30 June 2020.

In today’s post, you will find a summary of the bank’s latest set of results (to take note of), along with my personal thoughts to share:

Key Financial Results (1H FY2019 vs. 1H FY2020)

The bank only provided results for the half-year ended 30 June 2020 (period between 01 January and 30 June 2020.) That said, based on the bank’s business update provided for the first quarter of the financial year, I was able to manually compute some of the key figures for the second quarter (namely its total income and its net profit attributable to shareholders), and compare it against results in the same period last year, as follows:

2Q FY20192Q FY2020% Variance
Total Income
(S$’bil)
$2.62b$2.63b+0.3%
Net Profit
Attributable to
Shareholders
(S$’mil)
$1.22b$0.73b-40.3%

As you can see from the above, the second quarter’s result was a mixed one for the bank – with its total income remaining more or less the same on a quarter-on-quarter (q-o-q) basis, but its net profit attributable to shareholders tumbled 40.3% in the same time period – due to a S$350m in provisions to write down the carrying value of the existing offshore support vessels (or OSVs) that back corresponding impaired loans.

Now, let us take a look at some of the key financial figures reported by the bank on a year-on-year (y-o-y) basis (i.e. 1H FY2019 vs. 1H FY2020):

1H FY20191H FY2020% Variance
Total Income
(S$’bil)
$5.29b$5.12b-3.4%
– Net Interest
Income (S$’bil)
$3.12b$3.11b-0.3%
– Net Fee &
Commission Income
(S$’bil)
$1.02b$0.99b-2.9%
– Other Non-Interest
Income (S$’bil)
$1.15b$1.02b-11.3%
Net Profit
(S$’bil)
$2.53b$1.49b-41.4%
Net Profit
Attributable to
Shareholders
(S$’bil)
$2.45b$1.43b-41.8%

Overall, the latest set of results is a weaker one for the bank:

Its net interest income edged down 0.3% on a y-o-y basis, where a 5% increase in assets was offset by a sharp decline in its net interest margin.

Net fee and commission income fell by 2.9% due to a decrease in transactional and credit card fees, offset by higher fees from brokerage due to a rise in online trading activities and wealth management fees.

Other non-interest income tumbled by an even bigger margin – by 11.3% y-o-y, mainly due to unrealised mark-to-market losses in Great Eastern Holdings’ investment portfolio, offset by an increase in profits in Great Eastern Holdings’ insurance business.

Finally, as a result of a huge increase in allowances for loans and other assets (which skyrocketed by close to 300% from S$0.36b in 1H FY2019 to S$1.41b in 1H FY2020), its net profit and net profit attributable to shareholders plunged 41.4% and 41.8% on a y-o-y basis respectively.

My Thoughts: Prior to the results release, I was already fully prepared for the bank reporting a weaker set of results due to the current low interest rate environment and the need for the bank to provision for unforeseen circumstances arising from the Covid-19 pandemic.

As such, the latest set of results reported by the bank was largely within my expectations.

Key Financial Ratios (1Q FY2020 vs. 2Q FY2020)

Moving on, the following table contains the bank’s key financial ratios, where I will be comparing last quarter’s ratios (1Q FY2020 ended 31 March 2020, where the bank shared in its business update), against the current quarter under review (2Q FY2020 ended 30 June 2020, some of which I have computed myself), to find out if they have improved or deteriorated three months on:

1Q FY20202Q FY2020Difference (in
Percentage Points)
Net Interest
Margin (%)
1.76%1.60%-0.16pp
Return on
Assets (%)
0.67%0.69%+0.02pp
Return on
Equity (%)
6.0%6.2%+0.2pp
Non-Performing
Loans Ratio (%)
1.5%1.6%+0.1pp

My Thoughts: Overall, it was a mixed one for the bank – while its return on assets and return on equity edged up, but so too has its non-performing loans ratio. At the same time, its net interest margin have fallen by 0.16pp to 1.60% (which is largely within my expectation given the current economic situation.)

Dividends Declared (2Q FY2019 vs. 2Q FY2020)

During the bank’s AGM back in May (you can check out a summary which I have compiled here), they gave a guidance that in FY2020, they will be paying out 50.0% of their earnings as dividends to its shareholders. As I forecasted the bank’s results to weaken on a y-o-y basis, I am of the opinion that its dividends will fall as a result.

Additionally, due to a call by MAS for the bank to cap their dividend payout in FY2020 to 60.0% of their total payout in FY2019, along with providing an option for the bank’s shareholders to opt for scrip, the bank had declared a dividend payout of 15.9 cents/share for the current quarter under review (1H FY2019: 25.0 cents/share), plus making available the option for its shareholders to receive scrip (where its price will be based on the average of the closing prices on 21 August (ex-dividend date) and 24 August (record date), with a 10% discount off the average price.)

If you are a shareholder of OCBC, you need to take note of the following dates:

Ex-Dividend Date: 21 August 2020
Record Date: 24 August 2020
Payout Date: 07 October 2020

My Thoughts: Even before MAS’ call, I already expected the bank’s dividend payout for FY2020 to be lower than the previous year, due to the headwind faced as a result of the ongoing Covid-19 pandemic. Again, this drop is largely within my expectations.

In Conclusion

Just as you have read in the previous sections, the bank’s latest results, in my personal opinion, is largely within my expectations. Looking at the remaining quarters of the current financial year ahead, I expect its results to continue to be weak both on a q-o-q as well as on a y-o-y basis.

Finally, in case you are wondering if I will be taking cash or scrip, after much consideration, I will be taking cash, as the potential price of the scrip is not likely to cause too much of an impact in terms of bringing down my average invested price for the bank.

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Disclaimer: At the time of writing, I am a shareholder of Overseas-Chinese Banking Corporation.

 

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