Introduction: The Question Every Investor Is Asking
With Oversea-Chinese Banking Corporation (SGX: O39), or OCBC, trading near an all-time high of S$20 per share, it’s natural to feel like you’ve missed the boat.
After all, a massive surge of S$5, representing a 30% rally from previous highs of near S$15, can generate quite a lot of regret.
But does that mean you should chase here?
Strong fundamentals drove the march to S$15, as robust net interest margins (NIMs) led to record profits, and strong asset quality and capital buffers supported generous capital returns through dividends.
In this article, we lay out the current facts to see if OCBC is a buy now.
Overseas-Chinese Banking Corporation Today: What Are You Really Buying?
What are OCBC’s fundamentals now?
Well, OCBC owns a strong banking franchise with a solid ASEAN exposure.
The bank earns money from a diversified range of avenues, including its core banking operation of lending, alongside wealth management and insurance.
OCBC also possesses a rock-solid balance sheet, as seen in its low non-performing loan (NPL) ratio of 0.9%.
This low credit loss metric suggests a disciplined risk management approach adopted by the management.
Key things investors should assess now are the following:
Are earnings sustainable as we enter a rate-easing cycle?
Can non-interest income (fees from wealth management) cushion this reduction in income due to slimmer net interest margins (NIM)
Most importantly, can dividends be sustained with all these factors in mind?
Valuation Check: Cheap, Fair, or Fully Valued?
Let’s check in on OCBC’s current valuation.
OCBC trades at an estimated last 12 months (LTM) price-to-book (P/B) ratio of 1.6 times.
This seems fairly rich compared to its five-year historical average of 1.08 times.
Further capital return due to multiple expansion seems unlikely given the stretched valuation.
Hence, total returns from this point might increasingly come from dividends instead of share appreciation.
Currently, at $20.44, OCBC offers a trailing dividend yield of 4.8% (including special dividends).
Investors may wish to note that the recent interim ordinary dividend per share of S$0.41 represents a 6.8% step-down from the interim ordinary dividend per share of S$0.44 in 2024.
The Real Risk: Buying for the Wrong Reason
One of the most common investment traps is chasing a rally out of the “Fear of Missing Out” (FOMO).
While OCBC is a high-quality business, its current price (now trading above its previous range of S$15) does not automatically make it a “buy”.
A great business does not mean you can buy at any price; your purchase price dictates your eventual investment returns.
Remember, a high price is not a proxy for business quality.
Always prioritize underlying fundamentals over market momentum.
When Buying Now Could Still Make Sense
On the other hand, buying OCBC at current levels may make sense for long-term investors seeking steady dividend income.
A trailing 4.8% yield remains attractive given the high business quality.
If buying now fits your long-term approach to compounding returns at a steady pace within a diversified portfolio, the current price may be justified.
Finally, investors can adopt an approach of staggered buying where you purchase different tranches of OCBC shares instead of making one lump-sum purchase – essentially dollar-cost-averaging (DCA).
When It Might Be Better to Wait
If you are seeking quick gains through rapid capital appreciation, you may be better served waiting.
Should interest rates ease faster than expected, NIM could face pressure, leading to lower earnings and potentially more favourable entry points later.
In addition, the current valuation of trailing 1.6 times P/B leaves a thin margin of safety.
To justify this premium valuation; OCBC must execute flawlessly on its income diversification strategy, specifically within its wealth management and insurance business segments.
Finally, the availability of other better risk-adjusted alternatives could also mean your capital might be better served investing elsewhere, which justifies a “wait and see” approach rather than buying at current levels.
Conclusion – Get Smart: The Right Question Is Not “What If”
Remember that the market rewards discipline, not regret or FOMO chasing.
Just because you missed buying OCBC earlier at S$15 does not automatically mean you should buy it now.
You have to approach this decision with clarity: evaluate and decide if such a purchase now will align with your investment objectives and time horizon, factoring in the current valuation.
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Disclosure: Wilson.H does not own shares in any of the companies mentioned.
