Friday, 2 May 2014

Singapore banks - The world's strongest banks

Yesterday was May Day holiday, and it was nice to have a break in the middle of a hectic week. A friend of mine brought my attention to a local bank and thus started doing some research on the bank counters. This week all the banks have reported their earnings and it has been a record Q1 for the local banks, DBS, UOB and OCBC. You can read the report here.

As mentioned, a friend asked me about OCBC which I have forgotten that it was in my radar many moons ago. I dug out my little book and continue validating on the FA and TA from where it was last reviewed.

As most of you would have known by now that I have got a criteria that I use for stock selection, and since my last posts on CapComm and Starhill, there has been nothing that got me excited. And after checking on OCBC, I am pretty excited about this one and here is why.

Fundamental Analysis
Source :

In a report by Bloomberg on 'The world's strongest banks', it had ranked the banks using the criteria that was mentioned in the report here. Using this data, and looking at the banks in Asia, I guess it's not surprising to find Singapore banks ranked in the Top 10. This report, from a very reputable news source, does help tremendously in making the local banks achieving global presence, and also in times of economic uncertainty like now, it does help someone in making decision on which bank to trust in this region. 

Just for comparison, I have tabulated above, besides the Singapore banks, I have also included Hang Seng bank (from Hong Kong) and China Construction bank. These 2 banks were the only Asian banks that are in the front ranking. 
Looking at the PE ratios of these banks, you would noticed that Singapore banks are not that cheap in comparison with the other 2 banks. However, on the Price to Book ratio, they are definitely not high either. As one gets confused, it is probably better to get more data just to have another view on these ratios.

Source : Reuters

From Reuters; the diagram above, shows how OCBC bank compares with the Industry and Sector. Both these ratios, which is in the highlighted box (Red), they certainly don't look high to me.

Based on the above, here's the summary
  • Ranked No. 2 in the Bloomberg report on 'The world's strongest bank'
  • PE ratio does not seem high comparing with Industry and Sector
  • Price to Book does not seem high comparing with Industry and Sector
  • the dividend is more than 3%
  • Using the 5 yrs avg EPS of 0.764cents, the DCF is $10.4
  • Using the 5 yrs avg EPS of 0.764cents, at PE ratio of 13, it's price should be about $9.9
  • Recent buying of shares by shareholders
Technical Analysis

On the note that the 50MA is below the 200MA, it is still in the downward trend, thus one has to be cautious. Looking at the chart above, weekly 10MA has trended up nicely, and the price closed above the weekly 20MA today. Will the trend continue to move upwards in the coming weeks?

Disclosure - I am long.

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