OCBC can pay for WHB, but now it needs to deliver

OCBC's planned rights issue to finance its pricey acquisition of Wing Hang Bank may have reassured the market, but now the Singapore bank must overcome skepticism about the deal's merits.

"Looks good on paper, but devil is in execution," said Ng Wee Siang, an analyst at Maybank-Kim Eng, in a note Tuesday. "The market is likely to stay unconvinced until concrete results emerge," which will likely only be in the second half of next year, at the earliest, he said, adding he's "not taking a leap of faith" and keeping a "hold" call on the stock.

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Late Monday, OCBC said it would raise around 3.3 billion Singapore dollars ($2.7 billion) via a one-for-eight rights issue of 440 million shares sold at 7.65 Singapore dollars a share, or a 25 percent discount to Friday's share price. The rights offer will top up the Singapore bank's balance sheet after its $5 billion takeover of Wing Hang. OCBC paid around 1.8 times the Hong Kong bank's price-to-book ratio, compared with most mainland Chinese banks trading at less than one times.

The Singapore bank's share price reacted positively to the news, tacking on 1.1 percent even as peers DBS and UOB fell 0.3 percent each.

Munshi Ahmed | Bloomberg | Getty Images

OCBC's management remains upbeat on the deal and the potential for synergies.

"Wing Hang provides us with quite good access particularly in the Southern part of China and particularly in the Pearl River Delta region," where OCBC only has a minimal presence, Samuel Tsien, group CEO at OCBC, told CNBC Tuesday.

Read More Singapore's OCBC offers to buy Wing Hang Bank for $4.95 billion

"There's a lot of interconnectivity between the Pearl River Delta region, Hong Kong and Macau," he said, noting OCBC expects to capture both onshore and offshore business from Chinese firms there.

But Maybank's Ng isn't the only skeptical analyst.

"Management still has a long way to go to prove to shareholders on the merits of this acquisition, considering the premium paid for a mid-sized retail and SME bank that is seemingly disparate from OCBC's core banking business (which is superior in returns and lower in valuations), and how much it can really aid them in tapping into the Greater China-Asean (Association of Southeast Asian Nations) trade and investment flows," Benjamin Ong, an analyst at PhillipCapital, said in a note Tuesday.

He's sticking with a "neutral" call, expecting the WHB deal will offer only limited upside in the near-to-mid-term.

Even Citigroup, which raised its target price on the stock by nearly 7 percent after the announcement of the rights issue, is also staying "neutral."

"While the onshore-offshore China strategy to deepen relationships with large corporates remains a compelling angle to the China story, we note that WHB's onshore China operation profitability has been poor," Citigroup analysts Robert Kong and Gary Lam said in a note Monday. They were concerned about how long it will take to execute on synergies as well as the upfront integration costs.

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To be sure, having doubts about the deal hasn't kept some analysts from being positive on the stock.

"Fear of a rights issue had been a key drag on the share price since OCBC announced its intention to acquire WHB. However, with the quantum of dilution now clear, we see the easing of dilution fears as a catalyst for the stock," CIMB analysts Kenneth Ng and Jessalynn Chen said in a note Monday.

They're keeping an "add" call, with OCBC their top Singapore bank pick.

"The deal is no doubt bad for immediate ROEs (return on equity), and it also depresses capital ratios, but these negatives were factored into the early year underperformance," CIMB said. Earlier this year, the stock fell more than 11 percent in the weeks after word of talks with WHB emerged in early January. It's still only trading flat with its level at the start of the year.

CIMB noted that OCBC has previously executed the onshore-offshore China strategy well in Northern China and it expects the Singapore bank will likely be able to replicate it in Southern China, tapping WHB's existing network.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1