The Motley Fool

Which Singapore Bank Has the Cheapest Shares Right Now?

As of the time of writing, the Straits Times Index (SGX: ^STI) has tumbled around 60 points, or 1.8%, to 3,201.27. The three banks that make up most of the index – DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corporation Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11) – have not been spared. For instance, DBS’s shares are down 2.1%.

With the sudden rout, contrarian investors may be wondering which of the three banks is the cheapest now to buy for the long-term. So, let’s find out right away.

Battle of the banks’ valuations

The table below shows the valuation comparison of the banks (the best values among the banks are in bold):

Bank Price  Price-to-Book (PB) Ratio Dividend Yield
DBS S$25.41 1.37 4.7%
OCBC S$11.08 1.10 4.3%
UOB S$25.88 1.17 4.1%

Source: Author’s computation from the banks’ Q2 2019 earnings

I’m using the PB ratio and dividend yield metrics here to do the comparison. The PB ratio is computed by taking a bank’s current share price and dividing it by its latest net asset value (NAV) per share. The NAV of a bank is calculated by the simple equation of total assets minus total liabilities. The dividend yield shows how much an investor receives in dividend for buying a bank’s shares.

In terms of the PB ratio, OCBC is the cheapest bank with a ratio of 1.10. Coming in second is UOB, with a PB ratio of 1.17, and DBS is the most expensive with a PB ratio of 1.37.

When it comes to the dividend yield, DBS looks the most enticing with a yield of 4.7%. However, if UOB’s 2018 fourth-quarter special dividend is added to the mix, its yield jumps up to 4.8%. UOB has paid a special dividend of 20 Singapore cents per share in both 2018 and 2017.

The Foolish takeaway

Income investors may like DBS since it offers the highest dividend yield, excluding any special dividend. However, it is the most expensive of the trio when looked at from the PB ratio angle; OCBC is the cheapest in terms of the PB ratio.

Investors who are keen to invest in any of the banks, though, should conduct further research on it. They can explore their earnings potential, balance sheet strength, and so on, before making a buy decision. They also have to be mindful that the banks’ share prices may fall further in the short-term due to uncertainties in the world economy.

Want to start investing but worried about costly mistakes? Our "Heartland Investor" e-book reveals the 1 thing you should NEVER do in the stock market...including ways to handle market crashes. Download the e-book for FREE right here

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