Is it time to sell banking stocks?

Local bank stocks had a good run yesterday. The percentage change between two dates are shown below:

Banks 22 Jul 23 Jul Change ($) Change (%)
UOB 23.73 24.04 0.31 1.3
DBS 17.61 17.91 0.30 1.7
OCBC 9.58 9.65 0.07 0.7

UOB jumped 1.3%, DBS jumped 1.7% and OCBC increased 0.7%.

Is it time to sell DBS stock? For that, let’s look at share prices of banks since 15 May, after the release of first quarter results of all the banks.

Banks 15 May 23 Jul Change ($) Change (%)
UOB 22.70 24.04 1.34 5.9
DBS 16.86 17.91 1.05 6.2
OCBC 9.68 9.65 -0.03 -0.3

UOB rose 5.9% over the two dates. DBS rose 6.2% and OCBC declined 0.3%. Should we still sell DBS shares? Without the benefit of the second quarter results and the earnings reports for the quarter, let’s review bank performances of first quarter.

Banks Net Profits Y-o-Y Change NAV/RNAV ROE
DBS $1231.0 m + 30.0 $14.14 12.3%
OCBC $899 m + 29.0 $8.75 14.9%
UOB $788 m + 9.2 $18.57 12.4%

NAV/RNAV = Net Asset Value or Revalued Net Asset Value.

OCBC had a strong Return on Equity (ROE) at 14.9%, far higher than DBS and UOB.

When computing Price to Book ratio based on yesterday’s share prices and first quarter corporate results, the ratios are:

Banks 23 July Price Price to Book
DBS $17.91 1.266
OCBC $9.65 1.102
UOB $24.04 1.294

DBS has a way to go to reach 1.294 P/B ratio of UOB. Using 1.294 P/B, DBS could be $18.29 (38 cents away from $17.91), not considering other factors affecting performances of banks.

As for OCBC, the overhang of Wing Hang Bank acquisition weighs heavily on its share price. It had not moved much from 15 May share price when the other two banks had shot up.

Copyright © 2014, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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