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Three Things To Like About OCBC

On a superficial level, there is little to choose between banks. That is because they all do roughly the same thing.

Banks all look pretty much alike and here in Singapore, they even report results at the around same time. The special day this year was 14 February, when the three listed Singapore banks reported full-year results within hours of each other.

But scratch beneath the surface and banks could exhibit subtle differences. For instance, Oversea-Chinese Banking Corporation (SGX: O39) is the most geographically diversified of the three Singapore banks. It operates through 450 branches and representative offices in 17 countries. That is the first thing to like about OCBC.

Around two-thirds of the bank’s revenues are generated in Singapore and a fifth comes from Malaysia. Meanwhile, Southeast Asia’s largest economy, Indonesia, is another important source of revenue for OCBC. It accounted for one twelfth of total revenue last year. Greater China only delivered 6% of total revenues in 2013. But that could change following the S$6 billion bid to buy Hong Kong’s Wing Hang Bank (SEHK: 302).

Another thing to like about OCBC is its consistently high Return on Equity (RoE). Since the turn of the Millennium, OCBC has delivered a RoE that has varied by less than a whisker of 11%. That is pretty much in line with the market average. The median RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 11.6%.

Interestingly, even during the financial crisis of 2008, OCBC was able to post a return of around 10.5%. It means that investors enjoyed a profit of $10.50 for every $100 invested in the bank.

A bank is often judged by its book value. This is the total value of a bank that is arrived at by subtracting its total liabilities from its assets. In the case of OCBC, its book value has risen steadily over the last 13 years. That is the third thing to like about OCBC. In 2000, OCBC had a book value of S$8.2b. Five years later, it had risen to S$13.5b. And five years after that, the book value had grown to S$23.6b.

By 2013, OCBC’s book value had swelled to around S$28b. The 10% annual increase in its book value has been largely mirrored by the total return that shareholders have enjoyed over the same period. Or as Warren Buffett once said: “If a business does well, the stock usually follows”. In 2000, OCBC shares were trading at a dividend-adjusted price of S$2.98. Today they are S$9.71.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.