OCBC BANK AGREED TO BUY NAB PRIVATE WEALTH BUSINESS IN SINGAPORE AND HONG KONG

OCBC Bank said on Thursday that it has agreed to buy National Australia Bank's (NAB) private wealth business in Singapore and Hong Kong, a move which will give the Singapore bank immediate access to about 11,000 new affluent customers and add US$3.05 billion in customer deposits.

The purchase price is the book value, or net asset value, of the business at the time of completion of the transaction, which is expected to be before the end of the year, subject to regulatory approval. Based on the quarter ended March 31, 2017, the entire NAB's book value per share is A$17.98.

The Business Times understands that the purchase price of the NAB assets won't involve any premium to their book value. OCBC has said the business will be earnings accretive to the bank within the first year of completion.

As at end February 2017, NAB's business comprised a mortgage portfolio amounting to about US$1.7 billion (S$2.39 billion) worth of mainly residential mortgage loans, and a deposit portfolio made up of about US$3.05 billion (S$4.28 billion) worth of deposits of a mix of currencies.

OCBC said the addition of US$1.7 billion (S$2.39 billion) of mortgage loans will increase the overall size of OCBC Bank's mortgage portfolio by about 4 percent, based on its mortgage loans book of S$60 billion as at end March 2017.

The mortgage portfolio that OCBC Bank is acquiring is well-supported by a broad pool of mainly residential properties with a weighted average loan-to-valuation ratio of below 60 per cent. It has had a strong track record with negligible delinquencies, reflecting its high credit quality and the affluent profile of the customers.

More than half of the properties are located in Australia, the majority of which are in the major cities of Sydney, Melbourne and Brisbane. Properties in the UK, Hong Kong, New Zealand and Singapore make up the rest of the mortgage portfolio.

Ching Wei Hong, Chief Operating Officer, OCBC Bank, said the deal makes financial and strategic sense to the bank.

"A mortgage loans book of more than S$2 billion is not small. It would have taken us time and money to grow our mortgage loans organically by that amount. We are now getting an immediate boost to our mortgage loans book.

"The mortgage portfolio to be transferred to us is a high quality and well-supported one. And the customers are in the affluent segment that we have been building."

OCBC Bank will gain access to about 11,000 new customers - more than 7,000 in Singapore and about 4,000 in Hong Kong. The majority of the customers are Singapore and Hong Kong residents.

"OCBC Bank will have opportunities to deepen relationships with the affluent customers by leveraging its unique wealth management platform to provide an extensive range of wealth advisory, products and services,'' OCBC said.

On the sale of its private wealth business in Singapore and Hong Kong, Neil Parekh, General Manager, Asia (ex-Greater China), National Australia Bank, said NAB wanted a buyer that could meet its customers' growing demand for a wide range of wealth management solutions in Asia.

"OCBC is uniquely qualified to do so. We will work closely with OCBC Bank during the transition to completion to ensure a smooth process for customers..."

At 10:51 am, OCBC was trading around S$10.55 a share, up 9 Singapore cents, or 0.9 percent.

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OCBC REPORTED 14% RISE IN ITS FIRST QUARTER

OVERSEA-Chinese Banking Corp (OCBC) reported on Tuesday a 14 per cent rise in its first quarter 2017 net profit to S$973 million, compared to S$856 million a year ago.

The Singapore bank attributed its robust year-on-year performance to the sustained growth in wealth management income, higher profit from insurance operations as well as increased earnings in local currency terms from all of the group's overseas banking subsidiaries, particularly from Indonesia.

"We are pleased to report a rise in first quarter earnings. Our results reflect the underlying strength and diversity of our banking, wealth management and insurance franchise. We achieved broad-based loan growth, grew our private banking AUM (assets under management), and reported significantly higher fee income. Our Hong Kong, Malaysian and Indonesian banking subsidiaries saw higher year-on-year earnings growth in local currency terms and Great Eastern continued to deliver robust underlying total weighted new sales and new business embedded value growth,'' CEO Samuel Tsien said.

Net interest income of S$1.27 billion for the first quarter was 3 per cent lower as compared to S$1.31 billion a year ago, as higher asset growth was offset by net interest margin compression. Average customer loans grew 5 per cent year-on-year led by broad-based growth across most industry segments and key markets.

Net interest margin contracted 13 basis points from 1.75 per cent a year ago to 1.62 per cent, largely attributable to reduced customer loan yields and excess liquidity placed in high quality but lower yielding interbank placements.

The overall quality of the loan portfolio remained stable. OCBC said although the stress in the oil and gas support services sector is continuing, sufficient provisions have been made.

"We have a strong capital and liquidity position, and launched our maiden Covered Bond Programme which further diversified our funding base,'' the bank said. In March 2017, the bank launched its inaugural EUR 500 million 5-year covered bond under the US$10 billion Global Covered Bond Programme.

Non-interest income rose 30 per cent to S$977 million from S$753 million a year ago. Fee and commission income climbed 29 per cent to S$481 million, led by a 70 per cent rise in wealth management fee income, which got a boost from the acquisition of the former wealth and investment management business of Barclays PLC in Singapore and Hong Kong last November.

Profit from life assurance more than doubled from S$83 million in the preceding year to S$176 million, thanks largely to a positive performance by Great Eastern Holdings, its Singapore-listed insurance arm.

Wealth management income, comprising income from insurance, private banking, asset management, stock broking and other wealth management products, grew 50 per cent to S$724 million, from S$482 million a year ago. As a result, it contributed 32 per cent to the group's total income, compared to 23 per cent in a year ago.

OCBC's private banking business saw a significant increase in AUM to US$85 billion (S$119 billion) on March 31, 2017, up 49 per cent from US$57 billion (S$77 billion) the previous year, partly contributed by the acquisition of Barclays WIM.

Overall non-performing loans ratio was 1.3 per cent, unchanged from the previous quarter.

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SINGAPORE INVESTMENT STOCK PICKS FOR TODAY

The following stocks may be in focus today:

OUE: It has reported an 85 per cent surge in net profit for the first quarter ended March 31 to S$15.4 million on the back of stronger revenue, reversal of impairment losses on OUE Twin Peaks and lower finance expenses.

Its revenue of S$196.3 million, a 60 per cent jump from a year ago, was bolstered by strong contributions from both the property development and property investment divisions.

LHN said on Friday it is seeking a dual primary listing of its shares on the Hong Kong mainboard and has appointed Fortune Financial Capital as the sponsor in Hong Kong for the proposed listing.

It has also appointed other professional advisers, including Singapore and Hong Kong legal counsels, for the purpose of advising on this undertaking.

"The Board believes that having a primary listing status in both Singapore and Hong Kong is beneficial to the company as this provides the company with ready access to these different equity markets in the Asia Pacific region as and when opportunities arise," LHN said.

It also hopes to widen its investor base, increase trading liquidity and enhance its profile as it seeks to further expand regionally.

Addvalue Technologies: The company said on Sunday it has clinched an initial trial order of about US$1 million to supply the group's latest generation of maritime communications system, Wideye iFleetONE terminal, from various customers globally. Under discussions now are orders for about US$3.5 million from potential new customers, of which some are currently testing the product on their vessels.

A-Sonic Aerospace: The group warned on Friday that the consolidated results of the company and its subsidiaries are expected to register a net loss for the first three months ended March 31.

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Stocks for SGX Market Investment

Singapore stock investment SGX on Thursday issued a public reprimand to Singapore Post (SingPost) for breaching the exchange's listing rules in a July 18, 2014, announcement on the purchase of UK-based freight forwarder FS Mackenzie.

OUE Hospitality Trust (OUE H-Trust): The trust's distributable income for the first quarter ended March 31, of 2017, rose 19.1 per cent to S$23.5 million, from S$19.7 million in Q1 2016, the group reported on Thursday.

Chip Eng Seng: The property developer on Thursday reported a 647.9 per cent increase in its net profit for the first quarter. Net profit for the three months ended March 31, 2017, stood at S$6.1 million, compared to S$817,000 the year before.

Nera Telecommunications: Nera Telecommunications (NeraTel) reported a 40.8 per cent rise in net profit to S$2.86 million for the financial first quarter which ended on March 31, 2017, from S$2.03 million one year ago. This came on the back of a 44.3 per cent rise in revenue to S$44.12 million, from S$30.57 million a year ago.

 Hot Stocks of the Day for Singapore stock investment:

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KLSE Holding Update: SUNZEN AT 0.420, OUR FINAL TARGET DONE. GIVEN YESTERDAY FROM 0.385. 

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SGX SINGAPORE INVESTMENT MARKET OPENS FLAT TODAY

SINGAPORE stocks opened flat on Thursday, with the Straits Times Index gaining 0.25 points to 3,238.06 as at 9.02am.

The blue-chip index was muted ahead of the outcome of the US Federal Reserve's latest policy meeting.

About 56.8 million shares worth S$61.8 million changed hands, which worked out to an average unit price of S$1.09 per share.

The most actively traded counter was Noble Group, which rose S$0.001 to S$0.124 with five million shares traded. Other actives included Golden Agri-Resources and Jadason Enterprises.

Gainers outnumbered losers 74 to 53, or about seven up for every five down.

Profitable Singapore Stocks of the Day:

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BANK STOCKS CLIMBING DAY BY DAY

SHARES in local banks climbed for a second consecutive day on Wednesday after a solid set of results from DBS Bank on Tuesday.

As at 11.06am, DBS was the biggest percentage gainer, having jumped 3.4 per cent or 68 Singapore cents to S$20.54 on 6.1 million shares traded.

UOB was next, advancing 1.8 per cent or 40 Singapore cents to S$23.20 on 2.8 million shares traded.

OCBC Bank was not too shabby either, rising 1.3 per cent or 13 Singapore cents to S$10.11 with 6.1 million shares changing hands.

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A RECORD PLANE-BUYING SPREE IS POISED TO LAND SINGAPORE AIRLINES LTD

A record plane-buying spree is poised to land Singapore Airlines Ltd in an unfamiliar territory.

South-east Asia's biggest carrier is expected to turn to a net-debt position as early as 2018 - for the first time in 13 years - as the company borrows money and sells bonds to meet capital expenditure needs, analysts say.

Singapore Air, which has traditionally limited its debt load, would benefit from raising funds more cheaply through borrowings to improve return ratios and valuations, equity research firms including OCBC Investment Research and Crucial Perspective say.

The airline, which has US$53 billion of aircraft on order, expanded a medium-term note programme by two thirds to US$5 billion in April and said it intends to "proactively" take on more debt in future.

"I think it's good for shareholders," said Desmond Soon, Asia head of investment management at Western Asset Management Co. A company that can borrow cheaply can have higher leverage, leading to an improved return on equity and thus better prospects for stockholders, Singapore-based Mr Soon said.

The carrier's five-year average return on equity - an indication of how efficient a company is at generating profits - is below that of Cathay Pacific Airways Ltd, according to data compiled by Bloomberg.

Singapore Air's net debt may reach about S$660 million by the end of March 2018, according to a report by Eugene Chua at OCBC Investment Research on Feb 9. That compares with net cash of about S$3.3 billion for the 12 months through March 2016, Bloomberg-compiled data show.

A net-debt position occurs when a company's debt exceeds its cash and equivalents.

"Historically there has been lot of criticism Singapore Airlines' balance sheet is lazy" because of its cash pile, said Corrine Png, chief executive officer of Crucial Perspective, a research firm focused on Asian transport equities. A "more efficient" capital structure will help its return on equity, which has been depressed because of the large cash balance, she said.

Singapore Air has the smallest debt-to-equity ratio among 11 major airlines on the MSCI Asia Pacific Index at 10.3 per cent, compared with 126 per cent for Cathay Pacific, data compiled by Bloomberg show.

Capital expenditure at Singapore Air will average US$4.3 billion annually for the five years through March 2022, based on company figures in an investor presentation in November.

The spending will peak in the 12 months beginning April 2018, the year Singapore Air intends to restart the world's longest nonstop flight using an ultralong-range version of Airbus SE's A350-900.

"Our capital expenditure will be rising as we take advantage of new growth opportunities to better position the SIA Group for the future," Nick Ionides, a spokesman, said in an email.

"These investments will be financed by cash flows generated from operations, as well as by proactively taking on more debt in the coming years."

Singapore Air has 214 planes on order, including 39 long-range aircraft from Boeing Co with a list price of US$13.8 billion. Discounts are customary in the industry for large orders.

The Singapore carrier is trading at 3.1 times of enterprise value to trailing 12-month earnings before interest, tax, depreciation, amortisation and rent costs, compared with eight times for Cathay Pacific, data compiled by Bloomberg show. A lower figure means investors value Singapore Air less than Cathay Pacific.

Singapore Airlines' cost of equity is 6.2 per cent, while its cost of debt is 2.6 per cent, based on the latest available data compiled by Bloomberg. That debt cost is low among Singapore-based corporations, whose average is about 10 percentage points higher, making it "prudent" for Singapore Air to acquire more debt, said Nirgunan Tiruchelvam, a director at Religare Capital Markets in the city-state.

"Debt is cheaper than equity," Joshua Crabb, head of Asian equities at a unit of Old Mutual Plc, said from Hong Kong. Therefore "optimal gearing structures can add value," benefiting shareholders, he said.

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