A Look At Oversea-Chinese Banking Corp Limited From The Perspective Of A Value Investor

Oversea-Chinese Banking Corp Limited (SGX: O39) is one of the three banks that are based in Singapore. It also happens to be one of the largest companies in Singapore’s stock market and is an important part of the main local market barometer, the Straits Times Index (SGX: ^STI), with a 12% weighting.

The bank has not been immune from the market turmoil seen in recent times with its stock price falling by 17% over the last 12 months to S$8.44 currently.

Let’s look at the bank from a value investor’s perspective. Value investors like to look at many ratios, with four of them being the price to earnings (P/E) ratio, price to book (P/B) ratio, asset to equity ratio, and the dividend yield.

With OCBC’s trailing earnings per share of S$0.91 and current share price, the bank has a P/E ratio of 9.3.

This is much lower when compared to the SPDR STI ETF (SGX: ES3), an exchange-traded fund that tracks the fundamentals of the Straits Times Index. The ETF has a P/E of 11.5.

When comparing a company against the index, a lower PE could reflect two scenarios: 1)The company is priced cheaply when compared to the whole market, or 2) the company has poor fundamentals or has a business that is not performing well at the moment.

Moving on to the P/B ratio, at the end of the first quarter of 2016, OCBC had a net asset value (NAV) per share of S$8.20, which gives the bank a P/B ratio of 1.03. It’s worth noting that the aforementioned NAV did not take into account the revaluation of some of OCBC’s legacy assets to reflect their current market prices. If the adjustments were made, OCBC’s NAV per share would be S$9.82 instead, implying a P/B of 0.86.

Next, let’s look at OCBC’s total asset to shareholder’s equity ratio which is a commonly used metric to assess a bank’s leverage. In general, the lower the number, the stronger a bank’s balance sheet is. At the end of March 2016, OCBC’s total assets to shareholder’s equity ratio stood at 11.1. It’s an improvement from the 12.5 seen at end-March 2015.

Lastly, OCBC has a dividend yield of 4.3% based on its 2015 dividend of S$0.36 per share. The bank had also paid S$0.36 per share in dividend in 2014. Over the past decade, OCBC’s dividend has nearly doubled from the S$0.184 seen in 2005.

A Foolish conclusion

From the four metrics above, it seems like OCBC could look good to value investors. But, it should be noted that all that we’ve seen above should severe merely as a starting point for investors to dig deeper.

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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 Esjay owns shares in Oversea-Chinese Banking Corporation.