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Add ComfortDelgro or DBS, OCBC and UOB?

Saturday, November 5, 2022

Reader says to AK:

Thanks lots for your sharing. 

I just started reading your blog recently after hearing from my brother and sis-in-law. 

May I seek your thoughts on averaging down comfort delgro?

AK replies to reader:

I used to think that ComfortDelgro was a very defensive investment in the transport sector unlike SIA.

ComfortDelgro: Analysis.

That was until the pandemic hit our shores which saw the entire sector impacted badly. 

Small comfort but ComfortDelgro still fared better than SIA during the pandemic.

COVID-19 and ComfortDelgro.

The worst is probably over now for ComfortDelgro unless we are hit by another pandemic or something just as bad. 

However, ComfortDelgro still has headwinds such as the irrational competition from GRAB and also FOREX risks due to a relatively strong Singapore Dollar. 

A pretty significant portion of ComfortDelgro's income is derived from overseas ventures, after all. 

The British Pound Sterling, the Australian Dollar and the Chinese Yuan have all weakened against the Singapore Dollar. 

I would rather add to my investment in our local lenders, mostly OCBC and UOB, which seems like a better idea than investing in ComfortDelgro as their earnings enjoy a strong tailwind with rapidly rising interest rate.

Of course, this is my plan for myself.

All of us need a plan, our own plan.

Just talking to myself, as usual.

DBS, OCBC and UOB at 40% of portfolio?


unluckid said...

Sg banks have been rising steadily over the past few months, are their current valuations still ok to go in?

AK71 said...

Hi unluckid,

Well, you know what they say about how we won't usually get to buy at the lowest price.

It is the same here.

DBS is now trading at 1.5x book value, UOB at 1.2x book value and OCBC at 1.0x book value, approximately.

This is why I think UOB and OCBC are better value for money at the moment but, of course, book value is just one way to value stocks although probably a more pertinent one when it comes to banks.

My feeling is that we could see a retracement to supports in the near future and a 2% or more decline in price is not unlikely.

This is not to say that we shouldn't buy now since I could be wrong.

Although I am already significantly invested in the banks, I will buy more if their share prices should retrace to supports.

OCBC and UOB are still cheap but could be cheaper.

garudadri said...

Dear AK
Nice succinct message, fully agree. In fact, I cut my losses on 50% of mynCDG and raised cash levels to buy the more lucrative banks plus REITS
Jam today is better than waiting for CDG
In my opinion, we will never see CDG go to 2.50 and previous highs. Competition from GRAB GOJEK etc etc, newer MRT lines, better bus services, fewer tourists, higher fuel costs and overall inflationary forces eating into disposable incomes are a reality that will stick around for longer than what we wish for. The currency downsides from overseas are also going to impact CDG significantly
I had no regrets when I booked my losses and will do the same selling my remaining CDG soon
As regards income, the banks and well managed REITS will beat it any day and the banks will also offer better capital gains. Overall total shareholder returns will be poor with CDG
Real estate and banks will benefit and are good inflationary hedges as long as we don’t get into a DEEP and PROLONGED recession
The local SG REITS are being sold off indiscriminately and although there is significant downside risk, long term return prospects are enticing
Locking into 6-7% yields plus potential for gain in unit prices after rates start falling is a risk worth it IMHO
I will buy the REITS and Banks anytime over the likes of CDG THAIBEV etc which over promise and massively underdeliver

AK71 said...

Hi Garudadri,

I reduced my investment in ComfortDelgro as it bounced off the lows too.

Unfortunately, it does not look like ComfortDelgro's woes are going away.

The cash raised will mostly go to increasing my investment in the local banks.

If we believe what MAS and the CEOs of our local banks say, Singapore will likely be spared a deep recession.

Good luck to us all. :)

Jamesbond007 said...

Dear AK,
What are your views on the 3 local finance companies given the rising interest rates? Would much appreciate your humming about them to yourselves. Thank you.

AK71 said...

Hi Jamesbond007,

I have some exposure to Hong Leong Finance and Singapura Finance.

They pay decent dividends and seem undervalued.

Unfortunately, they do not have the scale and the reach of the banks.

Not in the same league, sadly.

SN said...

Hi AK,

With DBS at $35+, will you consider profit-taking? DBS dividend yield is currently at 4.1%, which is almost on par with that of low risk investments like T-bills and fixed deposit.

For OCBC and UOB, their yields are currently at 4.5% and 4% respectively. While UOB's yield is lower than DBS, in terms of book value (1.2x) compared to DBS (1.5x), UOB seems to offer better value.

Relative to the low risk investments like T-bills and fixed deposit with similar yields to the banks now, will you consider profit-taking a portion of DBS and allocating it to the low risk investments offering similar returns with "zero" risk?

or alternatively, will you consider profit-taking DBS and reallocating it to OCBC instead? OCBC book value of 1.0x and yield of 4.5% seems to offer much better value than both UOB and DBS now.

T-bills are currently around 4%, while for fixed deposit, UOB recently hiked their FD rates to 3.7% (for $50k and above).

AK71 said...

Hi SN,

I agree that DBS is relatively expensive compared to UOB and OCBC.

However, we pay a premium for DBS because of its pedigree and also its ability to grow faster.

We invest in DBS, OCBC and UOB not only because of dividend yield but also because of their growth potential.

If we look at their earnings yield instead of their dividend yield, then, they are more attractive compared to T-bills and fixed deposits.

There is also re-investment risk with T-bills and fixed deposits which means I really use them mainly for my emergency fund and my war chest.

I don't think of them as investments.

I am pretty happy with my exposure to the three local lenders now but if I were to add, I would add to my investment in OCBC and UOB.

DBS, OCBC and UOB at 40% of portfolio.

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