Compiled by Navin Sregantan
OCBC BANK | BUY (MAINTAINED)
SEPT 5 CLOSE: $10.77
TARGET PRICE: $14.48
UOB Kay Hian, Sept 5
We see higher probability of OCBC Bank emphasising its north-bound expansion to increase its 20 per cent stake in Bank of Ningbo (BON), which has a market capitalisation of $25.6 billion, when allowed to do so by the authorities in China.
It will also deploy capital to support expansion to double profit before tax from China's Greater Bay Area (GBA) to $1 billion by 2023.
Speculation has surfaced that OCBC is mulling an acquisition of 89.2 per cent stake in Bank Permata from Standard Chartered Bank (SCB) and Astra International. Both shareholders have equal stake of 44.6 per cent in the Indonesia bank.
Acquiring Bank Permata would increase OCBC's total assets and risk weighed assets in Indonesia by 3.9 per cent and 4.7 per cent respectively.
The potential acquisition would propel OCBC to be the fifth-largest bank in Indonesia. Bank Permata is smaller than OCBC NISP and has a low return on equity of 5.9 per cent.
It may not be worth the effort to acquire Bank Permata due to its chequered history.
Share price catalysts for OCBC Bank include expansion in GBA. Non-interest income from wealth management, fund management and life insurance will expand in tandem with growing affluence in Asia.
SILVERLAKE AXIS | BUY (MAINTAINED)
SEPT 5 CLOSE: $0.445
TARGET PRICE: $0.56
RHB Research Institute, Sept 5
Silverlake Axis, a sector top pick, saw revenue and profit after tax and minority interests (patmi) rise 30 per cent year-on-year (yoy) and 86 per cent yoy respectively.
This was due to margins improvement from higher licensing revenue, as it continued to implement a large Malaysian contract.
This is further lifted by a 24.2 million ringgit (S$7.98 million) gain from fair value adjustments.
With the improving fundamentals and stronger earnings growth as at FY2019, Silverlake is on track for a decent FY2020 but patmi will be likely impacted by higher effective tax rates from its Malaysian subsidiaries.
Management said it is keen on rewarding shareholders with better dividends. We believe Silverlake will likely conduct more share buybacks, similar to 2019 and this should be positive for the company.
Large contract wins from Indonesia and Thailand should likely be the next catalysts for the stock.
Key risks to the rating include economic recession and slowdown in banks' capital expenditure spending.
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