Is DBS still a better buy than UOB and OCBC after the CEO share sale?

What happened?

Earlier, we saw that DBS CEO Piyush Gupta sold about S$3.4 million worth of the company's shares in August.

This came after the company reported a record net profit in the second quarter of 2023.

While we shared that the share sale by management may not be a negative signal for investors, it still led to questions about whether DBS remains a good buy compared to the two other Singapore banks – UOB and OCBC. 

After all, DBS had the best share price performance over the past month. It share price has remained flat even after the payout of an interim dividend.

This might be because DBS had the best report card in the second quarter, as its net profit increased by 2% compared to the previous quarter. With a profit of S$5.26 billion in the first half of 2023, DBS could be on track to achieving its target of S$10 billion profit this year.

On the other hand, UOB and OCBC saw their profits declining by 6% and 9% respectively compared to the first quarter. 

As a result, UOB’s share price came down slightly in the past month.

Likewise, OCBC’s share price has also fallen slightly in the past month. This was despite the company's recent announcement to tap on the ASEAN-Greater China opportunity and deliver an incremental cumulative revenue of S$3 billion over 2023 to 2025.  

Let us dive deeper into the recent results of the Singapore banks to find out why DBS continues to be preferred by investors compared to UOB and OCBC. 

What you need to know about DBS, UOB and OCBC second quarter results 

Positives from Singapore banks second quarter results

• Net interest margins were firm and could remain high in 3Q

• Asset quality remain healthy
• Strong wealth management inflow
• Dividends were raised again

Negative from Singapore banks second quarter results

• Loan growth moderated further

Positives from DBS, UOB and OCBC second quarter results

#1 - Firm net interest margins (NIM)

DBS surprised with a 4 basis point increase in NIM to 2.16% compared to the previous quarter. This beat management’s previous guidance of a gradual decline for the rest of the year. 

With NIMs in June and July trending around 2.2%, the bank could report higher NIMs in 3Q. 

The firmness was due to higher Fed rates, continued asset repricing (about one-fifth of loans not repriced to higher interest rates), and less severe funding pressure.

UOB’s NIM dipped 2 basis points to 2.12%. The bank guided for stable NIMs for the next quarter, with upside potential from June’s NIM of 2.14%. 

OCBC’s NIM slipped more by 4 basis points to 2.26%, as deposit costs caught up. The bank did not change its FY23 NIM guidance of around 2.2%.

 This implies further NIM contraction ahead. Its outlook for NIM is weaker than peers.

#2 -  Asset quality remained healthy

The asset quality for DBS, UOB and OCBC remained healthy, with non-performing loan ratio little changed compared to the previous quarter.

DBS and OCBC's non-performing loan ratio stayed low at 1.1% in the second quarter. 

On the other hand, UOB had to fully write-off a bad debt from a Thai corporate. Even then, UOB’ non-performing loan ratio was stable at 1.6%. 

#3 -  Strong wealth management inflows

The banks benefitted from strong inflows of new money to their wealth management units. This could drive their fee income when market sentiment improves. 

UOB received S$5bn of net inflows in 2Q. DBS received S$6bn, with about half from North Asia. Customers placed their new funds equally in fixed deposits and investments. OCBC had the lowest net inflows of S$4bn in 2Q.

#4 - Dividends were raised

DBS raised dividends to 48 cents in the quarter, bringing its total for 1H to 90 cents. Management guided for further upside, with a payout of at least S$1.92 for FY23 and S$2.22 for FY24. It plans to step up dividends by 6 cents every 4Q. 

UOB dished out a higher 85 cents for 1H, for a 49% payout. OCBC raised dividends to 40 cents, in line with its 50% dividend policy. 

Negative from DBS, UOB and OCBC second quarter results

#1 -  Loan growth moderated further

Loans growth was mediocre at 0-1% compared to the previous quarter. This was due to slower economic growth and higher interest rates. Hong Kong loans for DBS declined due to a shift by customers to lower-cost China onshore loans. 

All three banks expect low-single-digit growth for loans for FY23.

What would Beansprout do?

On the positive side, Singapore banks have strong balance sheets, underpinned by resilient asset quality, strong asset prices and healthy employment in Singapore. 

The outlook for interest rates has shifted from peaking rates to higher rates for longer. Besides firm NIMs in 3Q, DBS and UOB may also capitalize on higher fee income from wealth management, and contributions from acquisitions.

On the negative side, higher interest rates and weaker economic conditions have led to slower loan growth.

Currently, all three banks are expected to offer dividend yields in excess of 5%. 

We previously shared that DBS and OCBC appear to have more potential for dividend upside amongst the Singapore banks.

This still seems to be the case, especially as their strong returns help to support their dividend payouts.  

In particular, DBS achieved a record high return on equity of 19.2% this quarter. In addition, it is expected to complete the integration of its newly acquired Citi Taiwan business in mid-Aug 2023, which could add to its net profits in 2023 and 2024. 

As such, the stronger share price performance of DBS compared to UOB and OCBC might be justified after all, despite the share sale by its CEO. 

Apart from banks, Singapore REITs also offer a dividend yield above the Straits Times Index. Check out our REIT tool to compare Singapore REITs and find the best REIT for your portfolio.

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