What We Can Learn From Oversea-Chinese Banking Corp Limited’s Multi-Billion Dollars’ Worth of Hidden Assets

As a bank, Oversea-Chinese Banking Corp Limited (SGX: O39) would likely not be the first few names to come to mind if we’re talking about property-related investments.

But interestingly, OCBC does have a portfolio of investment properties purchased over the past century that make for a good example on how valuable assets can at times be hidden in plain sight.

Last week, The Business Times reported that OCBC was looking to sell more than 30 shophouses in Singapore (majority of which are held by the bank as investment properties) for a collective sum of up to S$200 million.

These shophouses represent just a tiny portion of the S$1.147 billion worth of investment properties that OCBC has on its balance sheet as at end-2014. But something caught my eye when I dug into the footnotes of the bank’s balance sheet regarding the “Investment Property” account.

Turns out, OCBC’s investment properties had been carried at cost, less depreciation, on its balance sheet. Their real market value is some S$3.56 billion as at end-2014. In other words, OCBC has an unrealized profit of around S$2.4 billion from its investment property portfolio alone – that is close to 60% of the bank’s total net profit in 2014.

But before you jump to the conclusion that OCBC is extremely undervalued due to the presence of billions worth of “hidden” assets, it should be noted that the additional S$2.4 billion in unrealized gains on its investment properties is only about 7.7% of its shareholder equity of S$29.7 billion (as of 31 December 2014).

And given that OCBC is trading at some 1.3 times its shareholder’s equity value, the S$2.4 billion in unrealized gains, as big as they are, would be just a drop in the bucket in the grander scheme of things.

Foolish Summary

This hidden asset in OCBC is indeed fascinating. Even if the bank manages to offload that S$200 million worth of shophouses, there are literally billions left in this hidden-asset-cookie-jar. However, given OCBC’s huge size, these properties would likely only have minor implications on the overall value of the bank now and in the future.

In any case, this dive into the nitty-gritty of OCBC’s balance sheet also contains a valuable investing lesson: It’s important to read the footnotes in a firm’s financials. That’s especially true for companies with a long history in Singapore – you never know when a company might be sitting on very valuable real estate that’s hidden in plain sight.

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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 contributor Stanley Lim does not own any companies mentioned above.