With Singapore’s economy officially in a recession, it comes as no surprise that our local banks are also seeing a drop in their net profit this year. The star performers for many local investors over the past few years, the three local banks – DBS, OCBC & UOB – are also the top 3 components of the Straits Times Index, accounting for close to 40% of the index.
Earlier this year, the Monetary Authority of Singapore (MAS) called on local banks to cap their dividends at 60% of FY2019, and to offer shareholders the option of receiving the dividends to be paid for FY2020 in scrip (i.e. shares) instead of cash. This is a prudent move, as dividend restriction, for one year at least, will bolster the banks’ resilience and capacity to support other businesses in this period.
In this week’s edition of 4 Stocks This Week, we recap the performance of these locals banks for 1H2020.
DBS Group Holdings (SGX: D05)
Singapore’s largest bank is also the country’s biggest company by market capitalisation.
For 1H2020, DBS recorded a net profit of $2.41 billion, down about 25.9% compared to the same period in 2019. DBS also recorded a slight growth of 1.0% in its Net Interest Income at $4.79 billion. Net interest income refers to the difference between the revenue generated from loans that a bank provides to borrowers, compared to the interest cost that the bank pays for the funds.
In line with MAS request for local banks to cap their dividends at 60% of FY2019, DBS paid out $0.18 in dividends for 2Q2020, which is 60% of the $0.30 they paid in 2Q2019.
Since the 24 February to 23 March 2020 stock market crash when DBS went from $24.85 to $16.88 during a 30-day period, DBS has bounced back. It’s now trading at $20.51 as of 11 September 2020. With a market capitalisation of about $52.5 billion, the company is currently trading at a price-to-earning (PE) ratio of 9.588.
OCBC (SGX: O39)
For 1H2020, OCBC recorded a net profit of about $1.43 billion, down 41.8% compared to the same period in 2019. This is the largest decline in net profit in 1H2020 among the three local banks. Its net interest income remains about the same as 2H2019 at $3.11 billion.
OCBC typically pays dividends twice a year (Interim and Final). For its interim dividend in 2020, it’s offering $0.159 per share and investors can opt to receive it in cash or via scrip. Since 23 March 2020, OCBC share price has increased from $7.81 to $8.58. The company is currently trading at a PE ratio of 9.9.
UOB (SGX: U11)
The smallest of the three banks, UOB by itself is one of Singapore’s largest companies with a market capitalisation of about $32.5 billion. For 1H2020, its net profit was at $1.56 billion, down about 29.8% compared to the same period last year. Its net interest income is at $3.05 billion, down about 5.9% from the year before. UOB typically pays dividends three times a year and will be paying $0.39. Investors can also choose to take on scrip dividend.
Since 23 March 2020, UOB share prices have increased from $17.57 to $19.40. The company is currently trading at a PE of 9.05, which is slightly lower than the other local banks.
iFAST Corporation (SGX: AIY)
While iFAST is not a local bank yet, it intends to be one given that it’s one of the applicants that has been shortlisted to be a digital wholesale bank in Singapore. iFAST is a local company founded in 2000 as a Financial Technology (FinTech) company, even before the term existed. The company was listed on the SGX in 2014.
Despite the global pandemic, iFAST has done exceptionally well in 2020, especially considering it’s not in the rubber, medical, or essential consumer goods industries. For 1H2020, the company saw its net profit growing by 101.4% compared to the same period in 2019, on the back of a 33.2% growth in revenue. Barring unforeseen circumstances, the group said that it expects the full-year performance for 2020 to show healthy growth in profits and revenue compared to 2019.
iFAST is (rightly) valued as a growth company and its PE ratio reflects that. With a market capitalisation of about $580 million, its current PE is at about 43.2. This clearly shows that investors are investing in the company based on its expected future growth, which iFAST has indeed demonstrated an ability to capture despite the pandemic.
iFAST share prices have done exceptionally well. The company is now trading at $2.21 (11 September) after starting the year at $1.04.
To find out more about the performance of the local banks, you can read this SGX Market Update report.
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