Your 60-Second Guide to Oversea-Chinese Banking Corp Limited (SGX: O39) Shares
In this series, we will feature one Singapore-listed company each time as a quick guide to important things you should know about it in 60 seconds.
Right now, we have Oversea-Chinese Banking Corp Limited (SGX: O39), or OCBC for short. In the last instalment, we talked about electronics services provider Venture Corporation Ltd (SGX: V03).
What’s OCBC’s Business About?
OCBC was formed in 1932 from the combination of three local banks, becoming the longest established Singapore bank.
OCBC’s main markets are Singapore, Malaysia, Indonesia, and Greater China.
Right now, the bank has over 540 branches and representative offices in 19 countries and regions.
OCBC has five main business segments, and they are:
- Global Consumer/Private Banking
- Global Corporate/Investment Banking
- Global Treasury and Markets
- OCBC Wing Hang
The services offered by OCBC range from the basic savings accounts, loans and credit cards, to corporate finance services for initial public offerings, secondary fund-raising, and takeovers and mergers.
OCBC also offers life and general insurance products through its 87.9%-owned subsidiary, Great Eastern Holding Limited (SGX: G07).
OCBC’s Financial Highlights
The following table shows OCBC’s key financial metrics from 2015 to 2019 (the bank’s financial year ends on 31 December each year):
|Total income |
|Earnings per share (S$)||0.95||0.82||0.95||1.06||1.12|
|Net asset value per share (S$)||8.03||8.49||8.96||9.56||10.38|
|Net interest margin (%)||1.67||1.67||1.65||1.70||1.77|
|Return on equity (%)||12.3||10.0||11.0||11.5||11.2|
|Non-performing loans ratio (%)||0.9||1.3||1.5||1.5||1.5|
Over the last five years, OCBC’s total income and net profit have improved by 5.7% each on an annualised basis.
Total income grew from S$8.7 billion to S$10.9 billion while its bottom line increased from S$3.9 billion to S$4.9 billion.
However, for 2020, OCBC’s business could see some challenges due to the COVID-19 pandemic.
For the first quarter of this year, the bank’s total income fell 7% and its net profit plunged 43%, both on a year-on-year basis.
OCBC’s Dividend History
OCBC has been paying steady dividends over the last five years:
|Year||Total dividend per share |
|Dividend cover (times)|
From 2015 to 2019, OCBC’s total dividend per share increased by 10.2% per annum, from 36 Singapore cents to 53 Singapore cents.
OCBC’s 2019 dividend was also well-protected, with a dividend cover of around 2x, or a dividend payout ratio of 47%.
Given its conservative dividend payout ratio, OCBC should be able to maintain the 53 cents dividend for 2020 in my opinion.
Major Risk For OCBC To Take Note Of
One obvious risk right now comes from the COVID-19 pandemic, which has certainly caused economic headwinds.
Singapore’s Ministry of Trade and Industry expects our gross domestic product to shrink between 4% and 7% in 2020, the worst our country has seen.
An economic fallout is likely to affect OCBC in 2020 and up till recovery takes place.
OCBC’s Share Price And Valuation
OCBC’s share price has fallen around 8% over the last five years.
At OCBC’s share price of S$9.28 at the time of writing, it is going at a price-to-book ratio of 0.88x and a dividend yield of 5.7%.
OCBC’s latest valuation may look cheap compared to its historical valuation.
However, investors shouldn’t buy a company just because it’s cheap.
We must first understand whether OCBC’s business is resilient enough to emerge relatively unscathed from the economic headwinds.
Only then would any valuation exercise make sense.
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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 companies mentioned.