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2 Good Reasons To Like Oversea-Chinese Banking Corp Limited’s Stock Now

Oversea-Chinese Banking Corp Limited (SGX: O39) is a well-known company in Singapore, given that it’s one of the three banks based in our Garden City.

Right now, OCBC’s stock price is S$11.15, down by over 20% from a recent peak of S$14.04 that was reached only early May this year. The market may be sour toward OCBC at the moment, but there are plenty of positive things to like about the bank in my view. In this article, I will share two attractive traits about OCBC.

Strong quarterly results

The table below is a quick summary of some key financial metrics for OCBC in the first quarter of 2018:


Source: OCBC earnings presentation

We can see that the bank’s net interest income, non-interest income, operating profit, and net profit, all grew in the quarter on a year-on-year basis. That’s a good performance. Here’s some further commentary:

1. Firstly, OCBC’s net interest income grew by 11% year-on-year due to improvement in its net interest margin, and loan growth. Moreover, the bank’s loan growth was broad-based across industries and geographical segments.

2. Secondly, non-interest income increased by 8% year-on-year, mainly driven by a 19% rise in wealth management fee income and higher brokerage, fund management, and loan related activities.

3. Thirdly, the bank’s cost-to-income ratio improved from 45.9% a year ago, to 44.2% as a result of increasing scale and effective cost management. With the cost-to-income ratio, the lower the better.

4. Lastly, OCBC’s return on equity also climbed from an annualized 9.6% a year ago to 11.8% in the reporting quarter.

Low relative valuation

The second reason to like OCBC is its low valuation compared to its local peers, DBS Group Holdings Ltd (SGX: D05) and United Overseas Bank Ltd (SGX: U11). Let’s look at the following three valuation metrics: The price-to-book (PB) ratio; price-to-earnings (PE) ratio; and dividend yield. for the three local banks


Source: SGX Stock Facts

It’s clear from the table above that OCBC has the lowest PB and PE ratios out of the three banks. Meanwhile, its dividend yield is also respectable at 3.27%.

A Foolish takeaway

In all, we can see that not only did OCBC deliver a strong set of results in its latest quarterly earnings update, it also has lower valuations compared to its peers. These two traits are good reasons for investors to take a deeper look into the bank as a potential investing opportunity.

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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommendations on DBS Group Holdings and United Overseas Bank.