Brokers’ take
Compiled by Navin Sregantan
OCBC BANK | HOLD (DOWNGRADED)
JUNE 25 CLOSE: $11.25
TARGET PRICE: $11.50
DBS Equity Research, June 25
We remain cautious over OCBC's non-performing assets (NPA) coverage which at 78 per cent remains the lowest amongst its peers, even after additional provisions written in Q1.
Even as OCBC is likely to see modest net interest margin expansion in 2Q19, we are less hopeful that mark-to-market gains and strong net trading income seen in the first quarter can be sustained.
Though OCBC now has the highest CET1 ratio among peers post turning on its scrip dividends, its dividend payout ratio continues to lag behind peers.
We are of the view that OCBC's dividend policy will continue to weigh on near-term share price performance as management has maintained the need for strong capital levels amid volatile markets as well as for opportunities in the Greater Bay Area which contributed about 19 per cent to OCBC's profit before tax.
Our earnings forecasts are below consensus as we believe market volatility will continue to weigh on non-interest income. We see limited catalysts for the stock in the near-term. A higher dividend payout ratio for OCBC, closer to its peers' which is around 50 per cent, could be a re-rating catalyst.
Further escalation of trade war may subject some companies to vulnerability. Should asset quality deteriorate, more provisions might be required. In the event the trade war escalates, it might trigger further risks to loan and fee growth, especially for OCBC's Greater China exposure.
ASCOTT RESIDENCE TRUST (ART) | HOLD (MAINTAINED)
JUNE 25 CLOSE: $1.30
FAIR VALUE: $1.25
OCBC Investment Research, June 25
As at Monday's closing, ART has posted total returns of 24.5 per cent since the start of the year, as compared to the FTSE Straits Times REIT Index's 20 per cent and the Straits Times Index's 10.1 per cent.
We continue to like ART for its highly geographically diversified portfolio of high quality assets amidst the ongoing macroeconomic uncertainties.
That said, we believe valuations are stretched as at June 24's close. According to Bloomberg consensus, ART is trading at a 5.58 per cent blended forward dividend yield, more than two standard deviations below its ten-year average.
We believe investors in ART may find comparative value in Keppel DC Reit.
Like ART, Keppel DC Reit also boasts a quality portfolio of assets and substantial geographical diversification.
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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