• Stay BUY, new SGD13.90 TP from SGD14.40, 12% upside with 4% FY22F yield.OCBC Bank’s 1Q22 results are within expectations. Management remains cautious on its FY22 guidance, given the recent change in economic conditions. We trim our TP, due to a higher risk premium and after tweaking its ESG score to 3.1 (from 3.2) – as we recalibrated the assessment of risks and regulatory requirements associated with data and cybersecurity. At a current P/BV of 1.1x, stock’s risk-reward ratio remains compelling.

• 1Q22 in line.Net profit of SGD1,356m (+39% QoQ, -10% YoY) was at 24%/25% of our/Street FY22F earnings. Reported ROAE improved to 10.6% (FY21: 9.6%) while CET-1 was relatively stable at 15.2%. 1Q22 PIOP fell 19% YoY as non-II declined 23% on lower wealth management fees (-20%), trading income (-29%) and life insurance profit (-34%), and negative JAWs as opex grew 5%. NII rose 4% YoY on 8% YoY loan growth and stable NIM. The 63% YoY drop in provisions, with loan credit cost at a low 6bps (1Q21: 22bps), moderated the fall in net profit.

• FY22 loan growth target unchanged.While acknowledging near-term headwinds from the Russia-Ukraine war, the China lockdown and rapid rise in inflation, management believes Asia will remain resilient – helped by the reopening of economies. Loans grew 1.4% YTD or an annualised 5.6% in 1Q22, ie at the lower end of its FY22 target of mid-to-high single-digit growth. Loan growth is expected to gain momentum in 2H, as was the case in FY21.

• Slight uptick in NIM guidance.Management expects NIM at 1.55-1.60% in FY22, a slight upgrade from its earlier guidance of 1.50-1.55% (FY21: 1.54%). Management is conservative on its guidance, as it sees some uncertainty in the transmission of US interest rate hikes to Singapore’s benchmark rates. Hence, NIM could surprise on the upside. The bank estimates that a 100bps hike in the US rates would add SGD670m to NII and 14bps to NIM.

• Fee income.OCBC did not provide specific guidance on non-II growth. Management plans to increase the hedging of its investment portfolio (c.70% in 1Q22) to mitigate the impact of non-customer treasury flows. With investors cautious over risks of recession, it sees challenges to the expectations for double-digit growth in wealth management fees. The wealth management unit contributes c.50% of net fee income.

• Staying cautious on asset quality.OCBC’s loan book remained resilient in 1Q22 with no material weakening.Non-performing assets (NPA) dipped 0.7% QoQ, nudging NPL ratio to 1.4% from 1.5% in Dec 2021, while NPA coverage was at a comfortable 91%. Still, management is sticking with its credit cost guidance of 20-25bps for FY22F (FY21: 29bps), preferring to be cautious.

• Earnings and TP.We cut FY22-24F net profit by 4-5% after factoring in lower NIMs, non-II and higher provisions (Figure 3). Our newSGD13.90 TP(from SGD14.40) takes into account a higher equity risk premium and a lower 2% (from 4%) ESG premium, based on our in-house ESG methodology (Figure 4).$OVERSEA-CHINESE BANKING CORP(O39.SI)$