So far in August, shares in DBS Group Holdings Ltd (SGX: D05) have fallen by 6.6%, Oversea-Chinese Banking Corporation Limited (SGX: O39) shares have declined by 3.4% while United Overseas Bank Ltd (SGX: U11) has inched down by 0.4%.
Given the poor share performance by the trio of banks, it begs the question: Which bank has the best valuation to invest in for the long-term? To help answer that, I would be comparing the valuation of the banks against that of the SPDR STI ETF (SGX: ES3), an exchange-traded fund which can be taken as a proxy for the Straits Times Index (SGX: ^STI).
The table below shows the valuation comparison of the banks against the SPDR STI ETF (the best values among the banks are in bold):Source: S&P Global Market Intelligence; SPDR STI ETF website (data as of 21 August 2018)
In terms of PB ratio, OCBC looks to be the cheapest bank, but its valuation is still higher than that of the SPDR STI ETF, which has a PB ratio of 1.1.
When using PE ratio as a metric, OCBC once again triumphs over the other banks. Its PE ratio of 10.35 is lower than both DBS’ and UOB’s PE ratios. However, OCBC is still more expensive than the market.
When it comes to dividend yield, DBS gives the most bang for the buck with a yield of 4.8%. Furthermore, every dollar invested in DBS gives a higher cash inflow for the investor as compared to the SPDR STI ETF. Do note that the dividend yields for the banks exclude any special dividends declared.
It looks like OCBC offers the best value with its lowest PB ratio amongst the banks and a PE ratio which is smaller than even the SPDR STI ETF’s. Investors who are interested to invest in OCBC, though, have to look into other aspects such as its net interest margin, non-performing loans ratio, loan-to-deposit ratio, and so on, before deciding to purchase its shares.
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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.