Monday, July 21, 2014

Evaluating Bank Stocks (First Try)

Of course, there are the 3 local stalwarts in Singapore, which are DBS, OCBC and UOB.However, I also want to compare the smaller banks as well, such as Hong Leong Finance, Singapura Finance and Sing Investments and Finance. (clicking on the links would bring you to their annual reports)

I know that bank stocks are not really like normal stocks, and therefore they cannot be valued in the same way. After googling around and looking for what are the common metrics that people use, I made a list of them and trawled through their annual reports to pluck out all the data. I have to admit, it was rather easy to find and pluck out the data, almost no calculations was necessary.

I used FT to calculate their P/E and P/B ratios and pebbles to get their dividend yield for 2013. Not the most scientific and accurate way, but I'm lazy to calculate dividends as of now.

And in the end, here is the table that I got:


From the 3 stalwarts of the left, we can see that there is a clear difference from the 3 chilli-padis on the right. The stalwarts are on the whole much better looking fundamentally compared to the 3 chilli-padis.

Between the 3 stalwarts, I would dare to say that OCBC looks the best to me. If I had to only own 1 bank stock, it would be OCBC. Funny how it is also the local bank that I do most of my banking with. A clear case of personal experience directing me to the best company?

That might also be the case, because I still use DBS and I have no connections with UOB. As based on the table, UOB looks the most richly valued by the market now compared to the other 2, who are almost neck and neck, but with DBS winning marginally based on valuations.

Between the 3 chilli-padis I think Sing Fin & Invest looks the best to me. Not only is it the cheapest based on valuation, but it also seems the safest in terms of risks to the banking system. Hong Leong looks more squeezed based on interest margins, but it seems healthier in terms of risk and valuation, which puts it in second place for the little league competition. Unfortunately, Singapura Finance looks quite shakey to me.

Not the best way of evaluation, but I think it paints a decent picture of the 6 stocks as of today. Any recommendations for other useful metrics to include that would be meaningful?

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