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How Does Oversea-Chinese Banking Corp Limited’s Current Valuations Compare With History?

Oversea-Chinese Banking Corp Limited (SGX: O39) is one of the three major banks based out of Singapore, alongside DBS Group Holdings Ltd (SGX: D05) and United Overseas Bank Ltd (SGX: U11).

The banking industry is facing headwinds at the moment due to a slowdown in Singapore’s economic growth and challenges faced by the shipping and oil and gas industries. As a result, the shares of the three banks have fallen in the last two years. In the case of OCBC, its shares have dipped by nearly 12%.

I thought it’d be interesting now to look at the bank’s valuations and compare them with their historical ranges over the past five years. For this exercise, I will look at two ratios – the price-to-book (PB) ratio and the price-to-earnings (PE) ratio.

At today’s price of S$8.51, OCBC has a PB ratio of 1.0. From the chart immediately below, which plots OCBC’s PB ratio since 15 September 2011, you can see that the bank’s current PB ratio is actually near a five-year low.

ocbcs-pb-ratio-from-15-september-2011-to-15-september-2016
Source: S&P Global Market Intelligence

Next, OCBC is valued at 9.9 times trailing earnings at its current price. This is again near a five-year low, as you can observe in the following chart:

ocbcs-pe-ratio-from-15-september-2011-to-15-september-2016
Source: S&P Global Market Intelligence

So, two of the bank’s valuation ratios are near multi-year lows – this could be a reflection of investors’ worries with the banking industry.

In any case, it is important to understand that valuation ratios are only one of the many aspects of a business that investors should consider before committing any investment capital. Other qualitative factors such as the company’s future growth potential and quality of management must also be considered before an investment decision is made.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.