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Is There Value In Singapore-Listed Banks After Falling More Than 10%?

In Singapore, the three major listed banks are DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11). Since their respective share price peaks seen in late-April or early-May, each of the firm’s shares have fallen at least 10%, as of the close on Friday (6 July).

On Friday itself, DBS lost 2.6%, OCBC dropped 2.3%, while UOB fell 3.1% due to additional property cooling measures implemented by the Singapore government. It is expected that the latest cooling measures will put a dent in the growth of home loans.

Even though the trio is not doing well in terms of their share prices in the short-term, there is potential for them to do well in the longer term due to rising interest rates.

As such, investors would be wondering if there is value in the banks’ shares at the current stock prices. To answer that, let’s look at the price-to-book (PB) ratios, price-to-earnings (PE) ratios and dividend yields of the three banks with the help of their respective 2017 annual reports.

Bank 1: DBS

The following is a snapshot of DBS’ valuations from 2013 to 2017:Source: DBS 2017 annual report

Over the past five years, DBS’ dividend yield (excluding special dividends) ranged from 3.1% to 4.5%, with an average of 3.7%. In terms of PE ratio, it was between 9.3 and 12.3, giving an average ratio of 11.1. As for the PB ratio, it fluctuated from 0.9 to 1.2, translating to an average of 1.1.

At Friday’s stock price of S$25.35, DBS had a dividend yield (excluding special dividends) of 3.7%, PE ratio of 15 and a PB ratio of 1.3. DBS’ current PE and PB ratio are higher than the average, but its dividend yield is on par with the mean.

Bank 2: OCBC

Moving on, let’s look at OCBC’s valuations from 2013 to 2017:Source: OCBC 2017 annual report

During the period under review, OCBC’s dividend yield has ranged from 3.4% to 4.2%, giving an average of 3.7%. In terms of PE ratio, it was between 10.4 and 13.2, with an average ratio of 11.1. As for its PB (or price-to-NAV) ratio, it has fluctuated from 1.0 to 1.4, translating to an average of 1.2.

At Friday’s stock price of S$11.24, OCBC had a dividend yield of 3.3%, PE ratio of 11 and a PB ratio of 1.2. OCBC’s current dividend yield is lower than average; its PB ratio is on par with the mean while the bank’s PE ratio is a tad below average.

Bank 3: UOB

The following is a snapshot of UOB’s valuations from 2013 to 2017:Source: UOB 2017 annual report

Over the past five years, UOB’s dividend yield (including special dividends) ranged from 3.4% to 4.3%, with an average of 3.8%. In terms of PE ratio, it was between 10.0 and 11.7, giving an average ratio of 11.1. As for its PB ratio, it fluctuated from 1.0 to 1.3, translating to an average of 1.2.

At Friday’s stock price of S$26.26, UOB had a dividend yield (including special dividend) of 3.8%, PE ratio of 13 and a PB ratio of 1.2. UOB’s dividend yield and PB ratio are on par with the average, but it has a higher PE ratio.

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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.