Select Page
QuestionsCategory: Valuation QuadrantValuations of Banks (UOB vs DBS vs OCBC)
Chee Wai Chou asked 3 years ago

Hi Rusmin/Victor,
Would like to get further guidance from you guys in respect of valuation of the above three local SG banks that are currently listed in SGX.
Assuming three of these stocks are equally fundamentally strong, which valuation model should be used to value these stocks to determine whether their current stock price is cheaper/lower than their intrinsic value?
I have tried using P/E ratio, P/B ratio, and even using Revenue/Net Profit Growth among these three Banks, but was puzzled and confused to determine which is a better choice.
i.e., if I would use P/E ratio, based on current price:
UOB – $10.55
OCBC – $9.96
DBS – $10.99
Results – OCBC looks cheaper

if use P/B ratio:
UOB – $1.15
OCBC – $1.19
DBS – $1.35
Results – UOB looks cheaper

Any advise on the above please?
Thanks
Chee Wai

4 Answers
Victor Chng answered 3 years ago

Hi Chee Wai,

Do note that the investment quadrant cannot be use to analyse banks and insurance business because their require different sets of financial ratios.

 

You can use PB ratio for banks. You have to plot out their PB ratio chart and find out their average PB ratio. The best is to purchase below their average range.

Jieren Zheng answered 3 years ago

Just to add on that banks normally tend to trade around 1 PB as well.

Chee Wai Chou answered 3 years ago

Thanks for the advice!
Am I right to interpret that for Banks, a better valuation model is to use P/B ratio instead & the intrinsic value will be equivalent to average P/B ratio of the particular Bank stock for a certain period?
 

Victor Chng answered 3 years ago

Yes you are right Chee Wai