Oversea-Chinese Banking Corp Limited (SGX: O39), also known as OCBC, was formed in 1932 from the combination of three local banks and is now the longest-established Singapore bank.
It is currently the second-largest financial services group in Southeast Asia by assets. OCBC’s main markets are Singapore, Malaysia, Indonesia, and Greater China. Right now, the bank has over 560 branches and representative offices in 19 countries and regions.
Investors looking to invest in OCBC will be keen to know how the bank makes money, how much in dividends it pays out, and its valuation, among other things. So, without further ado, here’s your complete guide on the bank.
How OCBC makes money
OCBC has five main business segments, and they are:
- Global Consumer/Private Banking;
- Global Corporate/Investment Banking;
- Global Treasury and Markets;
- OCBC Wing Hang; and
The Global Consumer/Private Banking segment provides customers with products and services such as savings accounts, loans, credit cards, unit trusts, and brokerage services. It also provides wealth management services to high net worth individuals.
Moving on, the Global Corporate/Investment Banking segment serves corporate clients, and they can range from large companies to small and medium enterprises. Some of the products offered are long-term loans (project financing), short-term credit (overdrafts and trade financing), and deposit accounts. It also offers corporate finance services for initial public offerings, secondary fund-raising, and takeovers and mergers, among others.
Next, the Global Treasury and Markets segment is involved in the management of OCBC’s asset and liability interest rate positions, and also engages in foreign exchange activities, money market operations, fixed income and derivatives trading.
Headquartered in Hong Kong, OCBC Wing Hang offers a range of commercial banking and financial services such as consumer financing, share brokerage, and insurance.
Last but not least, the Insurance business, as the name suggests, is involved in providing both life and general insurance products. It is operated under OCBC’s 87.9%-owned subsidiary, Great Eastern Holding Limited (SGX: G07).
The following table shows the breakdown of operating profit by the various business segments in 2017 and 2018:Source: OCBC 2018 annual report
It can be seen that Global Corporate/Investment Banking contributes to the bulk of operating profit, followed by Global Consumer/Private Banking.
OCBC’s total income and net profit have grown steadily over the years.
From 2014 to 2018, both total income and earnings grew by around 4% each on an annualised basis. Particularly in 2018, total income and net profit improved by 2% and 11% year-on-year, respectively.Source: OCBC 2018 annual report
The total dividend from OCBC has climbed from $0.36 per share in 2014 to S$0.43 per share in 2018, growing at 4.5% per annum. In the first half of 2019, the bank increased its interim dividend per share by 25%, from S$0.20 to S$0.25. Even then, its dividend payout ratio was at a conservative 44%.Source: OCBC Q2 2019 earnings presentation
In its 2018 annual report, OCBC said the following with regards to its dividend:
“In setting the quantum of the dividend, OCBC seeks to maintain a dividend payout that is sustainable and predictable over the long term, while providing a reliable and attractive return to our shareholders. Our dividend policy is also premised on ensuring that we maintain a strong capital position to support business expansion while having the capacity to capture market opportunities when they arise.”
On 11 September 2019, OCBC shares closed at S$11.00 each. The price translates to a price-to-book (PB) ratio of 1.1, a price-to-earnings (PE) ratio of 10.2, and a dividend yield of 4.4%.
In comparison, on the same day, the SPDR STI ETF (SGX: ES3) had a PB ratio of 0.9, a PE ratio of 10.6, and a distribution yield of 3.7%. The SPDR STI ETF replicates the performance of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
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 Oversea-Chinese Banking Corp Limited. Motley Fool Singapore contributor Sudhan P owns shares in Oversea-Chinese Banking Corp Limited.