OCBC: Stock Performance Outpaces Earnings Growth - What's the Secret?

Over the past five years, Oversea-Chinese Banking Corporation (OCBC) has seen its stock performance outpace its earnings growth. This begs the question: what factors have contributed to this disparity, and can investors expect this trend to continue? Let's dive into the data and explore the key drivers behind OCBC's impressive stock performance.



1. Dividend Payouts and Share Buybacks: OCBC has maintained a healthy dividend payout ratio, appealing to long-term yield seekers. In 2024, OCBC announced a final dividend of S$0.42, an increase from the previous year's final dividend of S$0.40. Additionally, DBS announced a S$3 billion share buyback program, which has provided strong near to medium-term share price support. These initiatives have contributed to OCBC's attractive total shareholder return.
2. Regional Expansion and Fee Income: OCBC's regional operations have been growing, leading to higher fee income. This has helped offset any compression in net interest margins (NIM) due to increased funding costs. In the third quarter of 2024, OCBC's non-interest income grew by 41% year-on-year, driven by broad-based growth in fee and trading income.
3. Cost Discipline and Digitalization: OCBC has exercised cost discipline, keeping cost-to-income ratios near FY24 levels. This has helped maintain profitability despite challenges in the banking sector. The company's continued investment in digitalization initiatives has also driven business volumes and income growth, contributing to its stock performance.
4. Interest Rate Changes and NIM Compression: Changes in interest rates have played a significant role in OCBC's stock performance and earnings growth disparity. OCBC has experienced a compression in its net interest margin due to ongoing efforts to protect net interest income (NII). However, the company has been mitigating the impact of NIM compression by focusing on growing its regional operations and expanding its wealth and credit card businesses.



In conclusion, OCBC's stock performance outpacing its earnings growth over the past five years can be attributed to a combination of factors, including dividend payouts, share buybacks, regional expansion, cost discipline, and digitalization. While changes in interest rates have posed challenges, OCBC has been proactive in mitigating their impact. As we look ahead, investors should monitor OCBC's progress in these areas and assess the potential for continued outperformance relative to earnings growth.