Home » ViA Insights » Case Study » How Much Do You Know About DBS And If It's Worth To Invest In?

How Much Do You Know About DBS And If It’s Worth To Invest In?

DBS bank is a bank that need no introduction to any Singaporeans. It is the bank that set up the Singapore Government and most Singaporeans has a bank account with it.

Established on 16/7/1968 by the Government of Singapore, the bank’s main purpose is to provide loans and financial assistance to Singapore industries.

Since this bank was set up by the Singapore Government and a lot of Singaporeans has a lot of faith in it. But does it mean it is a good company to invest in it?

\\\In this blog post, we will discuss whether DBS is:In this blog post, we will discuss whether DBS is:

Profitable?
Safe?
Able to grow?

IS DBS BANK PROFITABLE?

Banks’ revenue comes from two sources, Net Interest Income and Non-Interest Income.

REVENUE: NET INTEREST INCOME AND NON-INTEREST INCOME

Based on the 10 years trend, their revenue has been increasing and rising!

Net Interest Income is compounding at 8%.

Non-Interest Income is compounding at 7.8%.

That’s a good sign.

NOTE: WHAT ARE NET INTEREST INCOME AND NON-INTEREST INCOME?

Net interest income is measuring the difference between the revenue generated from a bank’s interest-bearing assets and expenses associated with paying on its interest-bearing liabilities.

Now, usually Bank’s interest-bearing assets are Loans lend out to their clients, earning the interest rates.

Bank’s interest-bearing liabilities usually come from our deposits and in some case; bank does borrow money from other banks, which is debt or borrowings.

As for the Non-interest Income, basically the income comes for their services they provide. For example their credit card services, fees from telegraphic transfer etc.

NET INCOME

Next we should look at their Net income.

Now, we know that bank is profitable. Their Net Income is compounding at 10.7% for the past 9 years.

IS DBS BANK SAFE?

As a bank, their main business model is making money from loans. But because of this business model, not all debtors will return money.

All banks are aware of this. As an investor, we are interested how much of their loans are not performing.

However, in DBS 2018 annual report, they reported $5,684million of Non-performing Assets (NPAs).

With their total Assets standing at $550,751 million, this means their NPAs only represent 1.03%.

WHAT IS NON-PERFORMING ASSETS (NPAS)?

A NPA refers that a loans or advances that are in default or it is in arrears.

A loan is in arrears when the debtor is late or missed the principal or interest payments.

While a loan is in default when the lender (in our case DBS Bank) considers the loan agreement to be broken and the debtor is unable to meet his or her obligations to pay back.

WHAT DOES THIS MEANS?

DBS have 1.03% assets is not performing, either miss/late in their payment or DBS assess the debtors unable to pay back the loan.

As a conservative investor, assuming that all these NPAs write off, it means that DBS only write off only 1.03% of their total assets.

Of course, we does not wish that to happened, but assuming the worst case for these assets, DBS still able to carry on their operations without crippling issues.

Now we know that DBS has a lot of quality loans that are paying on time.

CAN DBS BANK GROW?

Now as an investor, we are out to make money. As value investors, naturally we want to see if the company is growing its net worth.

One way is that we check the past annual reports, how much they manage to retain their profits.

Under their balance sheet, there is one liner call “Revenue Reserve” in their equity.

This is the trend of their Revenue Reserve.

Their Revenue Reserve is increasing at CAGR of 12.4% for the past 11 years.

WHAT IS REVENUE RESERVE?

Revenue Reserve are a portion of the income that allotted for a particular purpose, for example, to prepare for future un-expectancy.

In short, a portion of the year’s net profit is transferred to this reserve before distributing a dividend.

OTHER FACTORS TO CONSIDER

Naturally just based on their Revenue Reserve is not enough. But it is a clear sign that the bank know what they are doing.

We also need to know if their business plan. What are they planning to do to grow further?

DIGITALLY

Their annual report has a huge focus on digital banking. Personally I feel that is a great step for the bank if they wish to grow sustainably. The core reason is because the old fashion of banking really takes a lot of time.

For example, there was once I have to create a cashier’s order. I have to take a queue number, wait for 1 hour to create one. I cannot imagine if I forget to bring certain documents, I have to travel back home, fetch the documents and then re-queue again. That’s really a time waster.

Now going digitally, DBS may actually reduce this queue time.

Apart of customer service, it also makes good business sense to go digitally as it will helps clients do their transaction faster. This actually free up the need of having more bank tellers at each branch, lesser human error on bank side and most important of all, able to serve more in 24 hours.

Although I admit, they really pushing a bit hard… that the internet meme creators caught on and…

Well they make one…

Although we are making fun of their effort (Sorry DBS!), but their intentions are clear. They are trying to make their services ingrain to our daily digital habits.

As such, I sincerely believe their trying to create an economic moat of high switching cost by being even more ‘sticker’.

IS DBS BANK WORTH IT?

At the time of this blog post, DBS’s dividend yield is 5.73%.

At the price of $26.20, their Price to Earnings ratio is 10.9 and Price to book Ratio is 1.33.

Personally I feel that DBS worth to keep it on my stock watch list. I will keep my eyes open on this wonderful company, hoping to get a cheaper price.

So, would you be keen to learn on how to invest safely and consistently across the companies that you have come across?

DISCLOSURE

The above article is for educational purposes only. Under no circumstances does any information provided in the article represent a recommendation to buy, sell or hold any stocks/asset. In no event shall ViA or any Author be liable to any viewers, guests or third party for any damages of any kind arising out of the use of any content shared here including, without limitation, use of such content outside of its intended purpose of investor education, and any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages resulting from such unintended use.

Topics You Might Be Interested In