Friday, November 10, 2006
[RealEdge] BT : OCBC to gain from property boom: Merrill
| Published November 7, 2006  | |
| OCBC to gain from property boom: Merrill
By WEE LI-EN
OCBC is well placed to 'play catch up' vis-a-vis its more widely favoured peers, according to a Merrill Lynch report released yesterday. While OCBC may be regarded as a 'yesterday's story' in share buybacks and aggressive non-core asset sales, it should reap gains from a broader property market as early as next year. Its exposure to consumer loans is 45 per cent, larger than those of DBS and UOB which are at 37 per cent. OCBC has also been focused on mass-market housing loans and has the largest exposure to them although precise numbers are unavailable, Merrill Lynch said. The investment bank expressed confidence that the gap between the broader property market and the high end market will narrow as the job market improves and ancillary businesses flourish. The report says the high-end market has risen 20 to 40 per cent in the past year alone, matching its high a decade ago in some cases. On the other hand, there has been little price change in the mid-end of the property market. Another factor in OCBC's favour is Merrill Lynch's confidence in the return of loan growth. While consumer loans have grown at a slower pace than business loans, the investment bank said it expects this to change as fixed investment leads loan growth, and has picked up strongly. In fact, Merrill Lynch expects double-digit growth for the whole sector this year and the next. The last time Singapore had double-digit loan growth was 1996. As for external market growth potential, OCBC has the best exposure with Malaysia making up 20 per cent of assets and loan growth averaging 10 per cent there, according to Merrill Singapore head of research Tony Raza. OCBC is also doing well in Indonesia with the market making up 3 per cent of its assets. Mr Raza also notes that until recently, OCBC traded at a premium to the others because its management was committed to capital management and had the most capital leverage. However, OCBC has since fallen below DBS' valuations as the 'story' grew 'old'. The report notes that OCBC chief executive David Conner's contract was recently extended for three years and that when Mr Conner first started in 2002, he pursued a 'very aggressive' non-core divestment strategy which has been completed. Merrill's report also notes that Mr Conner and his board 'must know' that the market favours the other two banks and may come up with another bold plan. |
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