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DBS, OCBC and UOB: Are Their Shares Cheap?

profileSudhan P

Singapore’s three listed banks — DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11) — have garnered plenty of interest among investors. 

Since November 2020, when compared to Singapore’s stock market barometer, the Straits Times Index (STI), the banks’ shares have done pretty well. 

For instance, shares in DBS have risen 52% versus the STI’s increase of 25%. DBS is currently the best-performing bank over the past year.

Source: Yahoo! Finance

Increased optimism about Singapore’s economy mending with the vaccine roll-outs could have helped to lift investor sentiment. 

In fact, Singapore’s Ministry of Trade and Industry just upgraded our country’s gross domestic product (GDP) growth forecast for 2021 to 6% to 7%, versus a prior estimate for an expansion of 4% to 6%. 

With the banks’ share prices going up of late, investors could be wondering:

“Is there value still in the banks at their latest stock prices?”

To help investors answer that question, let’s compare the historical price-to-book (PB) ratios, price-to-earnings (PE) ratios, and dividend yields of the three banks with their latest valuations.

Bank #1: DBS

First, let’s look at the biggest bank of ’em all, DBS.

The table below is a snapshot of DBS’ valuation from 2016 to 2020:

Source: DBS 2020 Annual Report

Here’s a quick analysis of DBS’ past valuation:

  1. DBS past dividend yield (excluding special dividends): Ranged from 3.9% to 4.8%, with an average of 4.4%
  2. DBS past PE ratio: Was between 9.3x and 12.3x, translating to an average ratio of 11.2x
  3. DBS past PB ratio: Fluctuated from 0.9x to 1.5x, giving an average of 1.2x

DBS is currently trading a share price of S$31.22 on 11 August. This translates to the following valuations:

  1. DBS dividend yield (forward): 3.7%
  2. DBS PE ratio: 13.3x
  3. DBS PB ratio: 1.5x

In July last year, the Monetary Authority of Singapore (MAS) called on local banks to cap their total dividends per share for 2020 at 60% of 2019’s dividends. 

However, at the end of last month, Singapore’s central bank announced that the dividend restrictions on banks will not be extended. 

Following the full lifting of regulatory restrictions, DBS increased its 2021 interim dividend to S$0.33 per share from S$0.18 per share a year ago.

Source: DBS Earnings Presentation

DBS is the only bank to pay a quarterly dividend. 

For the third and fourth quarters of 2021, DBS is likely to pay S$0.66 per share (or S$0.33 per share for each quarter). 

Using this, DBS’ forward dividend yield becomes 3.7% (using a projected 2021 total dividend of S$1.17 per share). 

Compared to history, DBS looks expensive using all three valuation metrics. 

Bank #2: OCBC 

Next up, let’s look at OCBC’s valuation from 2016 to 2020:

Source: OCBC 2020 Annual Report

Here’s a quick look at OCBC’s past valuation:

  1. OCBC past dividend yield: Ranged from 3.3% to 4.8%, with an average of 3.9% 
  2. OCBC past PE ratio: Was between 9.7x and 11.8x, translating to an average ratio of 10.9x
  3. OCBC past PB (or price-to-NAV) ratio: Fluctuated from 0.8x to 1.3x, giving an average of 1.1x

At OCBC’s share price of S$12.29 on 11 August, the latest valuations are:

  1. OCBC dividend yield (forward): 4.3%
  2. OCBC PE ratio: 11.5x
  3. OCBC PB ratio: 1.1x

OCBC declared a 2021 interim dividend of S$0.25 per share, up from S$0.159 per share declared a year ago. 

Assuming OCBC pays a final dividend of S$0.28 per share for the 2021 fourth-quarter (similar to the final dividend in 2019’s fourth quarter), OCBC’s dividend yield comes up to 4.3%. 

OCBC seems cheap in terms of its dividend yield. 

However, in terms of its PE ratio, it looks more expensive than average now. The bank’s PB ratio is on par with the mean. 

Bank #3: UOB

Last but not the least, let’s explore UOB’s valuation from 2016 to 2020:

Source: UOB 2020 Annual Report

Here’s a quick analysis of UOB’s past valuation:

  1. UOB past dividend yield (including special dividends): Ranged from 3.6% to 5.0%, with an average of 4.2%
  2. UOB past PE ratio: Was between 10.0x and 12.7x, translating to an average ratio of 11.2x
  3. UOB past PB ratio: Fluctuated from 0.9x to 1.3x, giving an average of 1.1x

UOB is selling at a share price of S$26.81 on 11 August. This translates to the following valuations:

  1. UOB dividend yield (forward): 5.0%
  2. UOB PE ratio: 13.7x
  3. UOB PB ratio: 1.2x

UOB declared a 2021 interim dividend of S$0.60 per share, up from S$0.39 per share declared a year ago. 

Assuming UOB pays a final ordinary dividend of S$0.55 per share and a special dividend of S$0.20 per share for the 2021 fourth-quarter (similar to 2019’s final quarter), UOB’s forward dividend yield comes to 5%. 

UOB has a dividend yield that’s better than average. However, its PE and PB ratios are more expensive than the mean. 

Putting It All Together 

Generally, in terms of PE and PB ratios, all three banks seem to be either fairly valued or overvalued. 

Income investors would especially love the banks after the lifting of dividend restrictions by the MAS recently. 

 DBSOCBCUOB
Interim dividend per share for 2019S$0.30S$0.25S$0.55
Interim dividend per share for 2020S$0.18S$0.159S$0.39
Interim dividend per share for 2021S$0.33S$0.25S$0.60
 

UOB is offering the best dividend yield of 5% based on its declared 2021 interim dividend of S$0.60 per share and a projected total final dividend of S$0.75 per share. 

OCBC comes next in line at 4.3%, followed by DBS at 3.7%. 

It’s also worth noting that the banks’ dividend yields are above Singapore’s long-term average inflation rate of around 2%

Looking ahead, all three banks should continue doing well given the better-than-expected economic recovery and strong business fundamentals. 

What’s Your Take on Singapore Banks? 

Check out the community at Seedly and participate in the lively discussion regarding banking stocks and more!

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer doesn’t own shares in any companies mentioned. 

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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