DBS, OCBC and UOB: Are They Still Undervalued?
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DBS, OCBC and UOB: Are They Still Undervalued?

profileSudhan P
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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 from investors of late. 

In the past month, when compared with Singapore’s stock market barometer, the Straits Times Index (STI), the banks have done pretty well. 

For instance, DBS shares have risen 9% versus the STI’s increase of 2.5%. 

The rise has been especially significant in the past few days after the banks announced better-than-expected earnings and separately, it was revealed that Joe Biden has been elected to be the next US president

Singapore banks share price performance vs STI (as of Nov 2020)
Source: Yahoo! Finance

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 2015 to 2019:

DBS valuation comparison 2015 to 2019
Source: DBS 2019 annual report

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

  1. DBS past dividend yield (excluding special dividends): Ranged from 3.1% to 4.8%, with an average of 4.2%
  2. DBS past PE ratio: Was between 9.3x and 12.3x, translating to an average ratio of 11.1x
  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$22.92 on 9 November. This translates to the following valuations:

  1. DBS dividend yield (forward): 3.1%
  2. DBS PE ratio (annualised 2020 third-quarter earnings): 11.6x
  3. DBS PB ratio (as of 2020 third-quarter earnings): 1.2x

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.

DBS said that the MAS cap restricts its cumulative dividends to 72 cents per share for the next four quarters starting from the 2020 second-quarter, or 18 cents per quarter.

Using this, DBS’ forward dividend yield is 3.1%.

Compared to history, DBS’ PE and PB ratios are either slightly more expensive than the average or on par with the average. 

Bank #2: OCBC 

Next up, let’s look at OCBC’s valuation from 2015 to 2019:

OCBC historical valuation data (2015 to 2019)
Source: OCBC 2019 annual report

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

  1. OCBC past dividend yield: Ranged from 3.4% to 4.8%, with an average of 3.9%
  2. OCBC past PE ratio: Was between 9.7x and 11.4x, translating to an average ratio of 10.6x
  3. OCBC past PB (or price-to-NAV) ratio: Fluctuated from 1.0x to 1.3x, giving an average of 1.2x

At OCBC’s share price of S$9.10 on 9 November, the latest valuations are:

  1. OCBC dividend yield (forward): 3.5%
  2. OCBC PE ratio (annualised 2020 third-quarter earnings): 9.9x
  3. OCBC PB ratio (as of 2020 third-quarter earnings): 0.9x

Under the MAS guideline, the maximum dividend per share that OCBC can declare would be 31.8 cents for 2020. With that, the forward dividend yield is at 3.5%.

OCBC’s PE and PB ratios are better than average now, but the bank’s forward dividend yield of 3.5% is slightly below its historical average.

Bank #3: UOB

Last but not the least, let’s explore UOB’s valuation from 2015 to 2019: 

UOB historical valuation data (2015 to 2019)
Source: UOB 2019 annual report

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

  1. UOB past dividend yield (including special dividends): Ranged from 3.7% to 5.0%, with an average of 4.3%
  2. UOB past PE ratio: Was between 10.0x and 11.7x, translating to an average ratio of 10.9x
  3. UOB past PB ratio: Fluctuated from 0.9x to 1.3x, giving an average of 1.2x

UOB is selling at a share price of S$20.65 on 9 November. This translates to the following valuations:

  1. UOB dividend yield (forward): 3.8%
  2. UOB PE ratio (annualised 2020 third-quarter earnings): 13.3x
  3. UOB PB ratio (as of 2020 third-quarter earnings): 0.9x

UOB declared an interim dividend of 39 cents per ordinary share, and this translates to an annualised dividend per share of 78 cents for 2020.

With that, UOB has a forward dividend yield of 3.8%. 

In terms of earnings, its current PE ratio is higher than the mean. However, with regards to its PB ratio, the latest one is lower than the average.

Putting It All Together 

In general, the bank shares are not looking expensive.

And the banks’ 2020 third-quarter earnings beat expectations, as reported by The Straits Times. 

For example, DBS’ profit of S$1.3 billion topped the $1.12 billion average estimate of eight analysts surveyed by Bloomberg. 

Having said that, the economic outlook in the short-term is still uncertain with the ever-evolving pandemic situation. Therefore, the banks could see their share prices fall further in the near term. 

Investors who are considering investing in Singapore banks must be able to stomach this volatility, on top of fully analysing the banks’ businesses.

What’s Your Take on Singapore Banks? 

Check out the SeedlyCommunity and participate in the lively discussion regarding banks 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 may have a vested interest in the 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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