CGS International (CGSI) downgraded OCBC Bank to a 'hold' rating in a research report released on Tuesday, citing limited upside potential after a significant increase in the bank's share price. The brokerage raised its target price for OCBC to S$28.40 from S$26, despite the stock trading at S$28.69 at the time of the report, suggesting a downside of approximately 1%.
Key Details
In the report, analysts Tay Wee Kuang and Tan Jie Hui noted that OCBC's share price had risen by roughly 19.1% since June, which limits further rerating potential until the bank demonstrates improved return-on-equity (ROE). CGSI expects visible ROE expansion to occur only in FY2028, following the completion of the integration of HSBC Indonesia’s wealth management business, which is targeted for mid-FY2027.
Background
The analysts also highlighted that OCBC is set to complete its capital return exercise by the end of FY2026, which will revert the bank to its standard 50% core dividend payout ratio. This is expected to yield an estimated dividend of around 3.2% for FY2027, lower than its peers, with DBS and UOB offering yields of approximately 4.8% and 4.5%, respectively. CGSI anticipates OCBC will report a net profit of S$1.93 billion for the second quarter of FY2026, marking a 6.4% increase year-on-year but a 2.1% decrease quarter-on-quarter.
The downgrade and revised target price could influence OCBC's stock performance, particularly in the banking sector, as investors weigh the implications of lower expected dividend yields compared to peers. The potential for further share price appreciation appears limited until the bank shows improved ROE metrics.
Watch for OCBC's upcoming second-quarter earnings report, scheduled for release in the coming weeks, which will provide insights into the bank's financial performance and future outlook.