The three listed banks in Singapore are DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11). The trio makes up close to 42% of the Straits Times Index (SGX: ^STI) and are loved by many investors, due to their relatively stable businesses. However, of late, the bank stocks have not done well. This is most likely due to the short-term pessimism surrounding global markets. Given the recent poor share price performances, I thought it would be interesting to see which bank is still cheap as compared to the SPDR STI…
The trio makes up close to 42% of the Straits Times Index (SGX: ^STI) and are loved by many investors, due to their relatively stable businesses. However, of late, the bank stocks have not done well. This is most likely due to the short-term pessimism surrounding global markets.
Given the recent poor share price performances, I thought it would be interesting to see which bank is still cheap as compared to the SPDR STI ETF (SGX: ES3), which is an exchange-traded fund that can be used as a proxy for the STI.
The table below shows the comparison of the banks against the SPDR STI ETF (the best values amongst the banks are in bold):Source: S&P Global Market Intelligence (data as at 21 June 2018); SPDR STI ETF website; author’s calculations
If we include the special dividend of 50 cents per share proposed by DBS in 2017, its adjusted dividend yield would be 5.3%. UOB’s board has also declared a special dividend during the same year, which amounted to 20 cents per share. The bank’s adjusted dividend yield would be 3.8%, if we account for the special dividend.
In terms of PB ratio, UOB seems to be the cheapest bank. It is just slightly higher than the STI ETF’s figure of 1.15.
When using PE ratio as a metric, all three banks can look expensive. The market has a PE ratio of 10.61 whereas the banks are all valued at more than 11 times their respective earnings.
As for the dividend yield, DBS gives the best bang for the buck amongst the banks with a yield of 3.44%, excluding special dividend. Furthermore, every dollar invested in DBS gives higher cash inflow for the investor as compared to the SPDR STI ETF.
It looks like there is no clear-cut winner as to which of the three banks is cheaper than the Singapore stock market. All three seem more expensive, in terms of PB and PE ratios, when compared to the SPDR STI ETF.
Even if there was a winner, investors who are looking to invest in any of the banks should look at other aspects such as its net interest margin, non-performing loans ratio, loan-to-deposit ratio, return on equity, and so on…
To know more about how to analyse a bank, you can check out the links below:
a) How to Analyze a Bank’s Balance Sheet – click here
b) How to Analyze a Bank’s Profitability – click here
c) How to Value a Bank Stock – click here
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of DBS Group Holdings Ltd and United Overseas Bank Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.