SINGAPORE: OCBC Bank delivered a strong fourth quarter earnings report, forging ahead of its local peers, whose earnings missed estimates and were down year-on-year.
Still, DBS Bank commands the highest dividend yield among the three big Singaporean banks and commits to a higher dividend and capital payout in the next two years, said analysts.
Macquarie Equity Research prefers OCBC over UOB and DBS for its strong earnings and wealth momentum.
Said head of Asean equity research Jayden Vantarakis: “OCBC delivered the best result among peers for fourth quarter 2025, led by solid revenue generation and contained asset quality trends.”
OCBC also leads in wealth momentum among peers, he noted in a Feb 26 note, raising his price target by 11% to S$23.82 and reiterating an “outperform” rating.
Vantarakis is also positive on OCBC’s new growth strategy, which includes capturing rising Asia flows and deepening its core market franchise.
“Chief executive Tan Teck Long has identified where to invest in the franchise and drive higher growth.”
RHB Research on Feb 25 said that OCBC will also return any unutilised portion of its S$2.5bil capital return plan via special dividends in 2026. The bank upgraded OCBC stock to “buy” and lifted the target price to S$23.45 from S$21.30.
Vantarakis said OCBC’s preference for special dividends over buybacks is “a slight positive” owing to the uncertainty around buyback deployment and focus on dividend yield.
The preference for special dividends “sets up for another year of about 60% payouts”, he said. The lender has S$780mil remaining under the S$2.5bil capital return commitment by 2026.
“OCBC has a 14% Common Equity Tier 1 (CET1) target and targets rising return on equity, opening up the potential for further capital returns from the 2027 financial year onwards once strategic targets are quantified,” Vantarakis added.
Morningstar associate equity analyst Kathy Chan said the bank may opt for special dividends over share buybacks if it does not fully deploy the remaining amount in 2026 and if the share price continues to stay strong for the year.
But OCBC shares are not cheap, she said on Feb 25, raising her fair value estimate to S$20 from S$18.50 to reflect stronger long-term earnings growth.
“We think the shares are slightly expensive compared with their intrinsic value, but decent shareholder returns should continue to support the share price,” she said, noting that OCBC has ample excess capital with a high CET1 ratio.
However, as the group focuses on its new corporate strategy and management said that they are likely to prioritise investments over shareholder returns as well as consider inorganic growth opportunities, the payout ratio could return to 50% from 2027, said Chan.
Morningstar assumes a 60% payout ratio for 2026, but expects that to normalise to 50% from 2027. It forecasts a dividend per share of 99 cents for 2026 and 86 cents for 2027, implying a yield of 4.6%.
Analysts said that UOB’s earnings could rebound in 2026, given that credit costs normalised in the fourth quarter.
Total credit costs fell to 19 basis points from 134 basis points a quarter earlier, and below UOB’s guidance of 25 to 30 basis points. — The Straits Times/ANN
