• DBS’ P/B ratio at record high while OCBC is lagging behind.
  • OCBC’s P/B ratio below its 10-year average
  • UOB’s P/B ratio at its 10-year average
  • Maintain OVERWEIGHT. We remain positive on banks. We prefer OCBC due to its potential upside of 15.6%. OCBC will also be a beneficiary of rising interest rates, and there is also potential for higher dividends due to its higher CET1 ratio.

DBS way ahead while OCBC lags behind

DBS current Price to Book (P/B) ratio of 1.6x is at a record high and is 0.4x higher than the 10-year average P/B ratio of the three local banks of 1.2x (Figure 1). Meanwhile, UOB P/B ratio is at the 10-year average, while OCBC is lagging behind with a P/B ratio of 1.1x which is only slightly above the -1 standard deviation (s.d.) (Figure 2).

Time for OCBC to catch up

DBS share price is at an all-time high, with the difference between DBS P/B ratio and UOB and OCBC P/B ratio at a record high of 0.4x to 0.5x (Figure 3). However, UOB P/B ratio when compared to OCBC is relatively moderate, hovering at a difference of only 0.1x (Figure 4).  DBS P/B ratio is currently way above the +1 s.d. and is at a record high (Figure 5), while UOB P/B ratio is at its 10-year average (Figure 6).

Investment Action

Maintain OVERWEIGHT. We remain positive on banks. We prefer OCBC due to its upside of 15.6% to our target price of S$14.22. Furthermore, OCBC is currently still trading the cheapest amongst the three local banks. OCBC will also be a beneficiary of rising interest rates with a CASA ratio of 62% as at 3Q21. It is higher than UOB CASA ratio of 55.8% but lower than DBS 75%. There is also potential for higher dividends from OCBC due to its higher CET1 ratio of 15.5%, which is the highest among the three local banks. UOB CET1 ratio is at 12.8% (post-acquisition of Citigroup) and DBS CET1 ratio is at 14.5% as at 3Q21.