DBS Group Holdings Ltd (SGX: D05) is one of Singapore’s three major banks. Right now, DBS Group’s share price is S$24.30, down by around 20% from its peak earlier this year that was reached in April.
The fall in DBS Group’s share price is a sign that the bank is currently out of favour among investors. But, here are two reasons why investors should be excited about the bank now.
Strong recent financial performance
After posting strong results in the second quarter of 2018 (where total income and profit grew by 10% and 18% year-on-year, respectively), DBS Group did the same in the third quarter. Here are some numbers:
1) Total income was up by 10% from a year ago to S$3.38 billion for 2018’s third quarter.
2) Net interest income (the bank’s income from making loans) improved by 15% year-on-year to S$2.27 billion, driven by a higher net interest margin and loan volume growth.
3) Net profit surged 76% to S$1.41 billion due to higher income and lower allowances.
4) The balance sheet remains strong with a total assets to shareholders’ equity ratio of just 11.4 as of 30 September 2018.
The recent decline in DBS Group’s share price has led to the bank having reasonable valuations.
At a share price of S$24.30, DBS Group has a price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield of 1.38, 11.57, and 4.9%, respectively. In comparison, the Singapore stock market’s self-same valuation numbers are 1.11, 11.35, and 3.5%. I am using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
So, we can clearly see that DBS Group has the significantly better dividend yield but slightly higher PB and PE ratios. Given the bank’s strong financial performances in recent times, its current valuation seems rather attractive to me.
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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 a recommendation for DBS Group Holdings.