Compiled by Navin Sregantan
OVERSEAS EDUCATION LTD (OEL) | BUY (INITIATE)
APRIL 23 CLOSE: $0.335
TARGET PRICE: $0.46
UOB Kay Hian, April 23
OEL has an excellent track record in keeping its operations, financials and dividends in good shape, despite a huge decline in student numbers after its shift to its new campus in Q3 2015 due to poorer accessibility.
We expect 2019 to be the third consecutive year of recovery with net profit growth of 11.2 per cent year-on-year (yoy), as the rate of decline in student numbers continues to narrow while significant cost savings from loan refinancing kick in.
The revenue decline narrowed from 5.4 per cent in 2016 to 4.5 per cent in 2018 and we expect it to narrow to 3.1 per cent in 2019.
On the other hand, we expect significant cost savings of around $3.3 million from the refinancing of its borrowings and further reduction of operating costs, offset by a revenue decline of $2.6 million.
We believe the market has overlooked OEL's track record in manoeuvring through challenging times, and its ability to maintain annual dividend payment of 2.75 cents per share and pare down debt at the same time.
Further improvement in profitability track record and wider analyst coverage should help OEL re-rate upwards.
OVERSEA-CHINESE BANKING CORP (OCBC) | HOLD (MAINTAINED)
APRIL 23 CLOSE: $11.83
TARGET PRICE: $12.20
RHB Research Institute, April 22
OCBC raised its home rate in January/February 2019. This will raise lending yield for a portion of Q1 2019 as more than half of OCBC housing loans are priced off this.
Lending yield should be even stronger in Q2 as the full three-month impact will be captured.
The ratio of deposits in current and saving accounts to total deposit accounts is 66 per cent.
We forecast 2019 net interest margin (NIM) of 1.76 per cent, an improvement over 2018's 1.70 per cent due to higher lending yields offsetting the rise in cost of funds.
We expect to see continued NIM widening in 2020 and 2021, although the magnitude of widening should be more subdued.
Despite forecasted OCBC 2019 NIM widening, we believe its NIM will remain narrower than peers.
The Q1 2018 base for non-interest income was high, and it would be challenging for Q1 2019 non-interest income to show growth.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.
The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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