Wednesday, January 8, 2014


Recently DBS surge a bit whereas OCBC retreated since news of OCBC impending bid for HK Wing Hang Bank. Banking sector in HK is low ROE akin to Singapore due to the intense competition and developed nature of the market unlike for example Indonesia where there could be ample untapped potential. For OCBC to buy into Wing Hang at around twice book value is going to be expensive if you consider that the business is not going to be terrific. Just look at DBS's acquisition of Dao Hang. All three Singaporean banks trade between 1-1.5 book value despite operating in an environment similar to HK.

Hence, I see the event triggering a rotation of some investors out of OCBC to DBS since DBS is trading at a slightly lower PE/BV ratio than OCBC's. Previously OCBC justify a higher PE/BV ratio due to a more solid operating profile but that will also change if the acquisition of Wing Hang go through.

All said but if OCBC managed to secure a deal at around 1.6 PE/BV of Wing Hang, it may be worth it since it allow them to expand into China at a reasonable price relative to its current PE/BV ratio.

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