DBS way ahead while OCBC lags behind
DBS current Price to Book (P/B) ratio of 1.6x is at a record high and is 0.4x higher than the 10-year average P/B ratio of the three local banks of 1.2x (Figure 1). Meanwhile, UOB P/B ratio is at the 10-year average, while OCBC is lagging behind with a P/B ratio of 1.1x which is only slightly above the -1 standard deviation (s.d.) (Figure 2).
Time for OCBC to catch up
DBS share price is at an all-time high, with the difference between DBS P/B ratio and UOB and OCBC P/B ratio at a record high of 0.4x to 0.5x (Figure 3). However, UOB P/B ratio when compared to OCBC is relatively moderate, hovering at a difference of only 0.1x (Figure 4). DBS P/B ratio is currently way above the +1 s.d. and is at a record high (Figure 5), while UOB P/B ratio is at its 10-year average (Figure 6).
Investment Action
Maintain OVERWEIGHT. We remain positive on banks. We prefer OCBC due to its upside of 15.6% to our target price of S$14.22. Furthermore, OCBC is currently still trading the cheapest amongst the three local banks. OCBC will also be a beneficiary of rising interest rates with a CASA ratio of 62% as at 3Q21. It is higher than UOB CASA ratio of 55.8% but lower than DBS 75%. There is also potential for higher dividends from OCBC due to its higher CET1 ratio of 15.5%, which is the highest among the three local banks. UOB CET1 ratio is at 12.8% (post-acquisition of Citigroup) and DBS CET1 ratio is at 14.5% as at 3Q21.
Glenn covers the Banking and Finance sector. He has had 3 years of experience as a Credit Analyst in a Bank, where he prepared credit proposals by conducting consistent critical analysis on the business, market, country and financial information. Glenn graduated with a Bachelor of Business Management from the University of Queensland with a double major in International Business and Human Resources.