Analyst's Pick : Morgan Stanley puts 'overweight' on OBC
OBC is now trading at a huge discount to other state-owned enterprise (SOE) banks. OBC has corrected sharply in the last few days. The stock is now trading at 0.4x book.
By ET Bureau |
Oriental Bank of Commerce
Research : Morgan Stanley
Rating : Overweight
CMP: RS 115
OBC is now trading at a huge discount to other state-owned enterprise (SOE) banks. OBC has corrected sharply in the last few days. The stock is now trading at 0.4x book. The stock is mispriced compared with other SOE banks, which are trading close to 0.9x book, on an average. Morgan Stanley remains negative on OBC���s fundamentals, but that���s for all the SOE banks.
The valuation gap is huge and some of this is likely to get bridged. OBC is now a most preferred stock among SOE banks. Earnings will be under pressure. Morgan Stanley is expecting the revenues to fall by 31% in F2010. This will be driven by a continued weakness in NIMs (net interest margins) and a sharp pick-up in credit costs. But, even on those earnings, the stock is trading at 4x.
Morgan Stanley agrees things can be much worse in terms of asset quality, but OBC will not be the only one to be affected. Other banks (which are trading at significant premiums) will also be affected in equal measure. Hence, this is the stock to buy in the SOE universe.
Research : Morgan Stanley
Rating : Overweight
CMP: RS 115
OBC is now trading at a huge discount to other state-owned enterprise (SOE) banks. OBC has corrected sharply in the last few days. The stock is now trading at 0.4x book. The stock is mispriced compared with other SOE banks, which are trading close to 0.9x book, on an average. Morgan Stanley remains negative on OBC���s fundamentals, but that���s for all the SOE banks.
The valuation gap is huge and some of this is likely to get bridged. OBC is now a most preferred stock among SOE banks. Earnings will be under pressure. Morgan Stanley is expecting the revenues to fall by 31% in F2010. This will be driven by a continued weakness in NIMs (net interest margins) and a sharp pick-up in credit costs. But, even on those earnings, the stock is trading at 4x.
Morgan Stanley agrees things can be much worse in terms of asset quality, but OBC will not be the only one to be affected. Other banks (which are trading at significant premiums) will also be affected in equal measure. Hence, this is the stock to buy in the SOE universe.
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There is no change in the negative view on Indian banks. Morgan Stanley expects core earnings for Indian banks to remain weak in F2010 driven by increased credit costs and weak revenues. Plus, Indian banks still remain among the most expensive banks in the region.Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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