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Are Singapore Banks Still Undervalued?

The three major 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). From the beginning of this year through to 8 April 2019, the banks’ shares have risen between 4% and 13%.

With the rise in share prices, investors might be wondering if the banks are still cheap. To answer that, let’s look at the price-to-book (P/B) ratios, price-to-earnings (P/E) ratios, and dividend yields of the three banks with the help of their respective 2018 annual reports.

Bank 1: DBS

The following is a snapshot of DBS’s valuations from 2014 to 2018:Source: DBS 2018 annual report

Over the past five years, DBS’s dividend yield (excluding special dividends) ranged from 3.3% to 4.6%, with an average of 3.9%. Its P/E ratio was between 9.3 and 12.3, meaning an average ratio of 11.3. The company’s P/B ratio fluctuated from 0.9 to 1.5, translating to an average of 1.2.

At Monday’s share price of S$26.82, DBS had a dividend yield of 4.5%, a P/E ratio of 12.4, and a P/B ratio of 1.5. DBS looks expensive when comparing its current P/E and P/B ratios with the averages, but its dividend yield is higher than the mean.

Bank 2: OCBC

Moving on, let’s take a look at OCBC’s valuations from 2014 to 2018:Source: OCBC 2018 annual report

During the period under review, OCBC’s dividend yield has ranged from 3.5% to 4.2%, averaging out to 3.7%. The company’s P/E ratio was between 10.4 and 11.4, with an average ratio of 10.8. Its P/B (or price-to-NAV) ratio has fluctuated from 1.0 to 1.3, translating to an average of 1.2.

At Monday’s share price of S$11.72, OCBC had a dividend yield of 3.7%, a P/E ratio of 11.1, and a P/B ratio of 1.2. OCBC’s current dividend yield and P/B ratio are on par with the mean, but the bank’s P/E ratio is above average.

Bank 3: UOB

Last but not the least, below is a snapshot of UOB’s valuations from 2014 to 2018:Source: UOB 2018 annual report

Over the past five years, UOB’s dividend yield (including special dividends) ranged from 3.4% to 4.5%, with an average of 4.0%. Its P/E ratio was between 10.0 and 11.7, meaning an average ratio of 11.1. The company’s P/B ratio fluctuated from 1.0 to 1.3, translating to an average of 1.2.

At Monday’s share price of S$26.50, UOB had a dividend yield (including special dividend) of 4.5%, a P/E ratio of 11.3, and a P/B ratio of 1.2. UOB has a higher dividend yield and P/E ratio compared to the average, but its P/B ratio is on par with the mean.

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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 recommends DBS Group Holdings Ltd, Oversea-Chinese Banking Corporation Limited, and United Overseas Bank Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.