Institutional investors – essentially big money managers – have been selling Oversea-Chinese Banking Corp Limited‘s (SGX: O39) shares recently. In September 2018, OCBC, one of Singapore’s banking giants, was among the top 10 shares that saw the highest net sales in dollar value by institutional investors during the month.
The institutional selling statistic may induce some fear toward OCBC among retail investors. After all, institutional investors tend to possess vastly greater resources than individual investors like you and me when researching stocks. But, there are good reasons why we should not be concerned with OCBC despite the recent sales of the bank’s shares by institutional investors. In this article, I will share two such reasons. [Editor’s note: An article sharing two more reasons has been published. It can be found here.]
Strong recent earnings update
OCBC reported a strong business performance in its most recent quarterly earnings update, which was for the second quarter of 2018. The bank’s total income (essentially the bank’s revenue) grew by 5.2% year-on-year to S$2.47 billion for the quarter. The total income is made up of a few components, the largest of which is net interest income, which jumped by 7.8% to S$1.45 billion. Meanwhile, another big component of OCBC’s total income, which is net fees and commission income, climbed 5.2% to S$518 million.
The higher top-line resulted in 20% year-on-year increase in OCBC’s operating profit to S$1.39 billion, and a 16% jump in net profit to S$1.21 billion. Moreover, OCBC declared an interim dividend of S$0.20 per share, up 11% from a year ago.
Solid track record of long-term growth
One of the most important traits that we as investors should seek in a company is its ability to sustain or grow its profit over the foreseeable future. And to assess this, we can look at the company’s track record for a minimum of five years. The idea is simple: A company that has a proven track record has a higher probability of being able to sustain or grow its profit in the future.
In the case of OCBC, the bank’s performance had been commendable. From 2013 to 2017, OCBC’s total income and net profit attributable to shareholders grew by very similar magnitudes. The former increased by 45% from S$6.6 billion in 2013 to S$9.6 billion in 2017, while the latter increased by 46% from S$2.8 billion to S$4.1 billion.
The Foolish conclusion
Market sentiment toward OCBC is clearly negative at the moment, given the recent sales of the bank’s shares by institutional investors. But, individual investors like you and me should not panic, since OCBC has a good track record of long-term business growth, and delivered a strong financial performance in its most recent quarterly earnings update.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for Oversea-Chinese Banking Corp Limited.