Is DBS Group Holdings Ltd Better than Its Competitors?

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Last week, as at 1 December 2018, I wrote an article on OCBC where I revisit its fundamentals and assess its investment potential with several valuation tools. I calculated the following for OCBC:

Key Statistics (1 December 2018):

Stock Price	P/E Ratio	PEG Ratio	P/B Ratio	Dividend Yield
S$ 11.26	10.35	1.03	1.20	3.29%

So, is this a good time to invest in OCBC? To answer this question, I would need to first compare OCBC with both DBS and UOB. Hence, I did a study on DBS and would like to share my findings in this article. Thus, here are 7 major things you need to know about DBS before you invest.

#1: Asset Quality

Over the last 10 years, DBS has grown its portfolio of loans and advances assets from S$ 125.8 billion in 2008 to S$ 323.1 billion in 2017. During the period, DBS has reduced its non-performing loan (NPL) Ratio from 2.9% in 2009 to as low as 0.9% in 2015. Similar to OCBC, its NPL Ratio had increased to 1.7% in 2017. This is due to weakness in loans provided to the oil & gas service sector.

Source: Annual Reports of DBS

As a result, it has contributed to a steady increase in DBS’s net interest income, up from S$ 4.30 billion in 2008 to S$ 7.79 billion in 2017.

Source: Annual Reports of DBS

#2: Non-Interest Income

DBS derives bulk of its non-interest income from fees and commission income arising from activities in wealth management, investment banking, brokerage, loans-related, cards, and transaction services. The rest are income arising from trading income and investment securities. Overall, its non-interest income has increased from S$ 1.75 billion in 2008 to S$ 4.48 billion in 2017.

Source: Annual Reports of DBS

#3: Long-Term Profitability

Growth in both net interest income and non-interest income has resulted in its continuous growth in total income. As such, DBS has reported steady growth in total income from S$ 6.0 billion in 2008 to S$ 11.9 billion in 2017.

Source: Annual Reports of DBS

For the past 10 years, DBS has kept its cost-to-income ratio at around 40 – 45% and NPL Ratio relatively low. Hence, with stable margins, DBS has increased its shareholders’ earnings from S$ 1.9 billion in 2008 to S$ 4.4 billion in 2017. DBS has 10-Year ROE average of 10.15% a year. It means, DBS has made an earnings of S$ 10.15 a year from every S$ 100 in shareholders’ equity.

Source: Annual Reports of DBS

#4: Latest Financial Results

Figures in S$ Million unless stated otherwise

Period	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Total
Total Income	3,055	3,360	3,203	3,375	12,993
Earnings	1,194	1,511	1,334	1,413	5,452
EPS (S$)	0.476	0.594	0.535	0.552	2.157

Source: Quarterly Results of DBS

DBS has reported sustained growth in total income and shareholders’ earnings. Over the last 12 months, DBS has generated S$ 13.0 billion in total income and  S$ 5.5 billion in shareholders’ earnings or S$ 2.157 in earnings per share (EPS).

#5: Balance Sheet Strength

In Q3 2018, DBS has recorded total capital adequacy ratio (CAR) of 16.2%, has a net stable funding ratio of 109%, and liquidity coverage ratio of 132%. Hence, it has reported ratios above their minimum regulatory requirements, indicating it has maintained a strong funding and capital position as at 30 September 2018.

Presently, DBS has been granted ‘Aa1’ credit rating from Moody’s and is among the World’s Top 5 Safest Commercial Banks by Global Finance in 2018.

#6: Relationship between DBS’s Profits and Stock Price Performance

Based on the two graphs below, I found that DBS’s stock price performance has reflected upon its consistent growth in shareholders’ earnings over the past 10 years. Thus, consistent growth in profits led to consistent growth in stock price.

Source: Annual Reports of DBS

Source: Google Finance

#7: Stock Valuation

Here, I’ll share a few metrics to value DBS at S$ 24.16 a share.

(1) P/E Ratio:

In Point 4, I have calculated that DBS had made S$ 2.157 in EPS for the past 12 months. Its current P/E Ratio is 11.20, below its 10-Year Average of 11.65.

Key Statistics (8 December 2018):

10-Year P/E Ratio Range: 7.39 – 16.92

10-Year P/E Ratio Average: 11.65

Current P/E Ratio: 11.20

(2) PEG Ratio:

DBS has achieved CAGR of 9.5% in shareholders’ earnings per year over the last 10 years. Hence, its PEG Ratio is 1.18. Its valuation is relatively fair as DBS’s PEG Ratio is close (slightly above) to 1.00.

(3) P/B Ratio:

In Q3 2018, DBS has net assets of S$ 17.56 a share. Its current P/B Ratio is 1.38 which is below its 10-Year average of 1.12.

Key Statistics (8 December 2018):

10-Year P/B Ratio Range: 0.64 – 1.36

10-Year P/B Ratio Average: 1.12

Current P/B Ratio: 1.38

(4) Dividend Yields:

DBS has started to pay out S$ 1.20 in dividends per share (DPS). Thus, based on its stock price of S$ 24.16, its dividend yield is 4.97% per annum, well above its 10-Year average of 3.85%.

Key Statistics (8 December 2018):

10-Year Dividend Yield Range: 2.49% – 7.72%

10-Year Dividend Yield Average: 3.85%

Current Dividend Yield: 4.97%

VIA’s Verdict

Similar to OCBC, DBS has delivered sustainable growth in total income, profits, and dividends to its shareholders over the past 10 years. It has a solid balance sheet with total capital adequacy ratio of 16.2% and is ranked as one of world’s top 5 safest commercial banks of the world by Global Finance in 2018.

Presently, DBS is trading at P/E Ratio of 11.20, PEG Ratio of 1.18, and P/B Ratio of 1.38, which is a little pricier than OCBC. However, it had revised its dividend policy and started to pay out DPS of S$ 1.20 a share, hence, raising its dividend yield to 4.96% per annum which is above OCBC’s dividend yield of 3.29%.

So, which do you prefer: OCBC or DBS? If you are undecided, stay tune for our assessment of UOB in my next article.

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