Will Singapore Bank (DBS, OCBC, UOB) Shares Keep Rising?

 

The recent performance of Singapore's major banks has been impressive, with their shares hitting all-time highs. As at time of writing, DBS Group (SGX: D05) and Oversea-Chinese Banking Corporation (OCBC) both achieved record share prices, with DBS surpassing S$38 per share and OCBC reaching S$15.28. United Overseas Bank (UOB) also performed strongly, hitting an all-time high of S$32.64 during the same period.

The surge in share prices has been attributed to several factors, including high interest rates that boost net interest income, positive earnings reports, and investor optimism ahead of upcoming financial results. he overall performance of these banks has significantly contributed to the Straits Times Index (STI), which itself reached a one-year high, reflecting the banks' substantial market presence.

However, the question remains: will this upward trend continue? Several factors need to be considered, including dividend yield, payout ratio, and the potential impact of interest rate cuts.

Current Performance and Dividend Yield

Currently the dividend yields for Singapore's banks are notably attractive, ranging from approximately 5 to 6 %. Even at $38, DBS has a trailing dividend yield of 5.29%. After its run-up to $15.28, OCBC's dividend yield is at 5.63%. UOB at above $32 still can yield 5.3%. These yields are appealing to income-focused investors, especially in an increasingly probable lower interest-rate environment. Institutional investors and fund managers are also inclined to shift their funds from low-risk government-backed bonds, treasury bills and fixed income bonds to high yield yet fundamentally safe stocks of Singapore banks.

The banks have consistently increased their dividends, with payout ratios hovering between 50-55% of their earnings. This stability in dividend payments is a key factor that supports investor confidence and can help sustain share prices even if growth slows down.

Personally, I believe that as the yields of safe financial instruments such as Singapore Savings Bonds, T-Bills and fixed deposits continue to fall in the coming months, more funds will be shifted into Singapore local bank shares, further compressing their yields to closer to 4%. Hence, they may still be headroom for the bank shares to continue rising. At 4% yield, DBS will be priced at $54, OCBC at $22 and UOB at $44.

Payout ratios and Financial Health

As of recent reports, the payout ratios for Singapore's banks are generally between 50% and 55%. This range indicates a balanced approach to dividend distribution, allowing banks to reward shareholders while still retaining enough earnings to support future growth initiatives.

• DBS Group: Historically, DBS has shown a strong commitment to dividends, with a payout ratio around 51% for its recent interim dividend. The bank has also demonstrated significant growth in its dividend payouts, with a compound annual growth rate (CAGR) of 9.3% over the past five years.
• OCBC: OCBC has maintained a target payout ratio of approximately 50%. This disciplined approach allows OCBC to manage its capital effectively while providing consistent returns to shareholders. The bank's dividend payout has also seen a CAGR of 9.1% in recent years, showcasing its commitment to rewarding investors.
• United Overseas Bank (UOB): UOB's payout ratio is similar, hovering around 55%. This reflects its strategy of balancing shareholder returns with the need for capital to support its growth initiatives, particularly in expanding its regional footprint.

The banks' consistent payout ratios signal financial stability, which is crucial for investor confidence, especially in uncertain economic conditions.

While high payout ratios such as REITs are appealing, they must be balanced with the need for capital to fund expansion and innovation. The Singapore banks have shown a strong ability to grow their earnings, which supports their dividend policies.

The recent high-interest rate environment has positively impacted the banks' profitability, allowing them to maintain and even increase dividends. However, potential interest rate cuts in the future could affect their net interest margins and, consequently, their ability to sustain high payout ratios. 

As the payout ratios of these local banks are rather conservative and sustainable, it should not be difficult for them to continue paying the same or even more dividends in a lower interest rate environment.

Interest Rate Cuts and their Impact

The outlook for interest rates is a pivotal factor influencing bank profitability. Following a period of high interest rates, there are expectations for potential cuts later in 2024. While high interest rates have bolstered net interest income—essentially the difference between what banks earn on loans and what they pay on deposits—any cuts could compress these margins. Analysts suggest that while the banks have benefited from elevated rates, the net interest margins (NIM) may have peaked.

The anticipated cuts could lead to a decrease in profitability, particularly if banks are unable to adjust their lending rates downward in tandem with deposit rates. However, the banks are also diversifying their revenue streams. For instance, non-interest income, particularly from fees related to wealth management and credit card transactions, is expected to grow, which could help offset any declines in net interest income.

Technical Analysis

DBS

DBS share price will face an immediate resistance at $38.38. Should it break through this resistance with volume, it may propel towards $40. Otherwise, it may consolidate above the $36 range above its 100, 50 and 20 days moving averages. There is strong immediate support at $35.55, which if breached will see it tank towards the $33 range, which is an attractive point where long-term investors could start nibbling shares of DBS.

OCBC

OCBC share price will face an immediate resistance at $15.33. Should it break through this resistance with volume, it may propel towards $16.50. Otherwise, it may consolidate above the $14.50 range above its 100, 50 and 20 days moving averages. There is strong immediate support at $14.25, which if breached will see it tank towards the $13.80 range, which is an attractive point where long-term investors could start nibbling shares of OCBC.

UOB

UOB share price will face an immediate resistance at $33.10. Should it break through this resistance with volume, it may propel towards $35. Otherwise, it may consolidate above the $31.20 range above its 100, 50 and 20 days moving averages. There is strong immediate support at $30.50, which if breached will see it tank towards the $29 range, which is an attractive point where long-term investors could start nibbling shares of UOB.

In summary, while Singapore bank shares have reached new heights, several factors will determine whether this momentum can be sustained. The attractive dividend yields and stable payout ratios provide a solid foundation for continued investment interest. However, the potential for interest rate cuts poses a significant risk to future profitability. As the banks adapt to changing market conditions and focus on diversifying their income, they may still offer growth opportunities, albeit at a potentially slower pace than in the recent past. Investors should closely monitor these developments to make informed decisions about our investments in Singapore's banking sector.

I am on the lookout for any correction or retracement of the bank share prices and may consider to start nibbling more shares of DBS at around $35, OCBC at around $13.80 and UOB at around $30.

Thank you for reading!

With love & peace,

Qiongster

Net Worth Update September 2024 | SGD 1.71m Record High!

My net worth soars to a record high of S$1.715m in Sep 2024 fueled by the resurgence of S-Reits investments, CPF contributions, salary savings and dividends collected.

Net Worth Breakdown:

Safe Heavens (63%)

CPF (36%): A cornerstone of my financial strategy, CPF has been instrumental in constituting the foundation of my wealth. Attaining Full Retirement Sum FRS in 2022 was a great accomplishment.

Cash and war chest (15%): My liquid assets are strategically invested in fixed deposits and Fullerton cash funds, earning over 3% p.a. This provides a cushion for unexpected expenses while generating steady returns.

Bonds (11%): A balanced portfolio of low-risk Singapore Savings Bonds and Astrea bond ensures stability. I have maxed out my SSB individual limit of $200k last month, right before the yield of SSB falls below 3%.

Retirement Savings (13%)

SRS (8%): I have already contributed $15.3k for 2024, adding another layer to my retirement savings plan. My SRS funds are deployed into $30k of SSB and 6 local stocks - Comfortdelgro, DBS, OCBC, Keppel DC Reit, Keppel Reit and Wilmar.

Insurance (5%): I also own Prudential Pru-life multiplier whole life insurance plan and other savings plans which in total, could provide me with 6-digit lump sum payout after my retirement age.

Income and Growth Assets (25%)

Stocks and Reits (25%): This riskier portion of my portfolio caters for generation of passive cashflows and potential growth, with a focus on long-term compounding growth through dividend investing.

Achieving another net worth milestone is a testament to the power of consistent saving, disciplined investing, compounding growth and strategic financial planning. By diversifying across safe havens, retirement savings, and growth assets, I am trying to build a robust financial foundation. The ongoing contributions to CPF, coupled with the strong performance of my investments, have been key drivers of this growth.

Imagine reaching a net worth of S$1.7 million before the year end. It is a milestone I never thought I would achieve when I first started investing. As I look ahead, I remain committed to my long-term financial freedom aspiration and will continue to focus on maximizing returns while managing risks.

Thank you for reading!

With love & peace,

Qiongster

Sold Parkway Life Reit

 

Today, I sold my Parkway Life Reit shares from SRS account. This was a difficult decision for me, as I only started being a long-term investor in the REIT late last year. 

However, there are a few reasons why I believe that this was the right time to sell.

1. Valuation

Plife Reit is currently trading at more than 60% premium to its net asset value (NAV) of $2.34. This means that the REIT is valued higher than its underlying assets. I believe that the REIT is severely overvalued now and that there is a risk of a correction in the near future.

2. Interest Rate Compressed and Forex risks

Plife Reit is a defensive healthcare REIT having exposure to interest rate risk just like any other REITs. Outlook seems positive in light of expected interest rates cut in Sep 24 as well as aging population in Japan where it owns a large number of nursing healthcare properties. 

At a share price of $3.93 and projected annual dividend of $0.15, its dividend yield is compressed to merely 3.8%. If interest rates stay high for long, coupled with prolonged depreciation of yen, the cost of borrowing for the REIT will remain high and net property income will be suppressed. This could put pressure on the REIT's future distribution yield.

3. Opportunity Cost

I believe that there are better investment opportunities available in the market today. I can reinvest the proceeds from the sale of Plife Reit into other assets that I believe offer a better risk-return profile.

Plife Reit has just distributed the latest bi-annual dividend of $0.0754 and the next dividend will be in Feb 2025 which will be a few more months away.

I plan to consolidate and deploy my spare cash in SRS account into local bank shares such as DBS or OCBC, which I hope to see correction soon due to worries about their net income margin from interest rate cuts and mounting global recession fears.

Overall, I believe that selling Plife Reit at 3.93 was the right decision for me. While I am disappointed at my impatience to not sell it above $4 for more profits, I believe that it is important to take decent profits when they are available.

Thanks for reading.

With love & peace,

Qiongster

What is more important than Money?

In the hustle and bustle of modern life, it's easy to become preoccupied with accumulating wealth. We're often told that money is the key to happiness, success, and security. However, as we delve deeper into the pursuit of riches, we may find ourselves neglecting other invaluable assets: time and freedom.

Time: A Non-Renewable Resource

Time is a unique resource. Unlike money, which can be earned, saved, or invested, time is finite. Once it's gone, it's gone forever. Yet, we often squander it on activities that don't bring us true fulfillment.

• Prioritizing the Urgent Over the Important: We often find ourselves caught up in the daily grind, rushing from one task to the next. While it's essential to handle urgent matters, it's equally important to make time for what truly matters.
• The Illusion of Endless Time: We often believe that we have plenty of time to pursue our passions, goals, and relationships. However, time flies by faster than we realize.
• The Value of Present Moments: Instead of constantly worrying about the future or dwelling on the past, we should focus on savoring the present moment.

Freedom: The Cornerstone of a Fulfilling Life

Freedom is another essential element of a fulfilling life. It allows us to make choices, pursue our passions, and live authentically.

• Financial Freedom: While money can provide a certain level of freedom, it's not the only factor. True financial freedom comes from having the ability to live life on your own terms, without being constrained by debt or financial worries.
• Time Freedom: Having the freedom to choose how you spend your time is invaluable. It allows you to pursue hobbies, travel, spend time with loved ones, and engage in activities that bring you joy.
• Personal Freedom: Personal freedom is about being true to yourself and living according to your values. It involves making choices that align with your beliefs and aspirations.

Finding Balance

While time and freedom are crucial, it's important to recognize that they are not mutually exclusive. It's possible to achieve a balance between financial stability and a fulfilling life.

• Setting Priorities: Identify what truly matters to you and prioritize those things.
• Creating a Budget: A well-crafted budget can help you manage your finances effectively and reduce stress.
• Learning to Say No: Don't be afraid to say no to commitments that don't align with your priorities.
• Taking Breaks: Schedule regular breaks and vacations to recharge and prevent burnout.
• Cultivating Gratitude: Focusing on what you have, rather than what you lack, can help you appreciate the blessings in your life.

In conclusion, while money or wealth can provide certain benefits, it's essential to recognize the value of time and freedom. By prioritizing these invaluable assets, we can create a more fulfilling and meaningful life. Remember, true wealth lies not in material possessions, but in the experiences we have, the relationships we cherish, and the freedom to live life on our own terms. Last but not least, the embodiment of good health allows us to enjoy the wealth, free and time in life.

Thanks for reading.

With love & peace,

Qiongster

A Day of Record-Breaking Net Worth: The toil of Success

Have you ever experienced a day where the stars seemed to align perfectly, only to be thrown a curveball at the last minute? That's exactly what happened to me today. 

Today, I woke up on a seemingly chill Friday morning feeling a sense of anticipation. The SGX market had been performing well in the previous weeks, and I had a good feeling as I work from home with no meeting scheduled for the day. As I checked my portfolio, my heart raced. My S-REIT investments have surged strongly, and my net worth had surpassed my wildest expectations by reaching a staggering SGD 1.7 million while doing nothing but the celebration was short-lived.

Just as I was starting to feel a sense of accomplishment, I received a surprising request. My big boss asked me to do an ad hoc presentation in the office, in just 2 hours' time. Given that I was working from home, this was a significant challenge. I had to quickly gather and prepare my slides, get dressed, and commute to the office.

The unexpected presentation added an extra layer of stress to an already hectic day. I had to juggle preparing for the presentation and responding to other calls and work demands. With no time to eat lunch or go for tea breaks, I felt the strain on my body and mind. It was a demanding test of my time management skills and ability to remain calm under pressure.

Looking back, I've learned valuable lessons from this experience. First, it's important to maintain a healthy work-life balance, even during times of great success. Second, being prepared for unexpected challenges is essential. Having a contingency plan in place can help us navigate unforeseen circumstances with greater ease. Lastly, the importance of attaining financial freedom is greater than ever to gain an option to escape from the rat race.

Today my net worth hit a record high was undoubtedly a memorable one. It was a culmination of years of hard work, sacrifices discipline, frugality and strategic investing. However, the unexpected experience serve as a reminder that even in moments of triumph, life can throw us curveballs. By focusing on a healthy balance and being prepared for the unexpected, we can navigate both success and challenges with grit and resilience.

With love & peace,

Qiongster

CICT Acquires 50% stake in ION Orchard: A Strategic Move for Singapore's Retail Landscape. Opportunity or Boom for Shareholders?

 

CapitaLand Integrated Commercial Trust (CICT:C38U) has announced a strategic move in the Singapore retail market with its acquisition of a 50% stake in ION Orchard and its connecting underpass, Ion Orchard Link from its sponsor, Capitaland Investment (CLI: 9CI). This iconic 8-storey shopping mall, located in the heart of Orchard Road, is renowned for its luxury brands, high-end dining, and vibrant atmosphere. The acquisition marks a significant step for CICT, positioning it as a major player in the premium retail sector.

Understanding the Acquisition

The agreed property value for the 50% stake in ION Orchard is $1,848.5 million and the total acquisition outlay is around $1,101.3 million. CICT will be funding the acquisition through a combination of a $350 million private placement to institutional investors and a $757 million preferential offer to unitholders. 

The issue price is between $2.038 and $2.091 for each private placement unit and $2.007 for each non-renounceable preferential offer unit on the basis of 56 preferential offer units for every 1,000 units owned.

Expected Benefits

This is a yield accretive acquition keeping the Reit's leverage ration stable at 39.9%.

The proforma DPU accretion for the FY could be up to 1.2%.

Why is this Acquisition Significant?

1. Strategic Location: ION Orchard's prime location in Orchard Road, Singapore's premier shopping district, ensures high foot traffic and strong demand for retail space.
2. Diversified Portfolio: By adding ION Orchard to its portfolio, CICT can reduce its reliance on any single property or sector, mitigating risks.
3. Synergies with Existing Properties: CICT can leverage its expertise to enhance ION Orchard's performance, potentially through optimized tenant mix, innovative marketing strategies, or operational efficiencies.
4. Brand Enhancement: Associating with ION Orchard, a well-known and respected brand, can elevate CICT's own brand reputation and attract more tenants and visitors to its other properties.

Opportunities for Unitholders?

An advanced pro-rated dividend distribution of between $0.0211 and $0.0221 per unit has been announced to balance the books. The last day to qualify for this advanced dividend is on 9 Sep. There is opportunity to buy CICT from the market to qualify for the advanced dividend and preferential offer units before or on 9 Sep.

The subscription of preferential offer shares will commence on 16 Sep and end on 24 Sep. For unitholders who held on to their units at least until 9 Sep, they can apply for these preferential offer shares through the ATM, internet banking or if Paynow is supported from a given QR in the dispatched letter (this option potentially save a $2 admin fee).

As an existing CICT shareholder with 18,506 shares, I relish and welcome this opportunity to increase investment without incurring hefty brokerage and commission fees. I am entitled to 18,506 / 1000 * 56 = 1,036 preferential unit shares, at $2.007, amounting to $2,079.25. I plan to subscribe at least 1,500 shares in this preferential offering exercise to increase my investment in CICT above 20,000 shares.

Of course, I could have purchased additional CICT shares early this year when it was trading below $2 due to the unfavourable high interest environment but at that time, local bank shares were more attractive in terms of yield and growth then.

CICT's acquisition of a 50% stake in ION Orchard is a strategic move that positions the REIT for growth and success in Singapore's retail market. By leveraging the iconic mall's prime location, strong brand, and potential synergies, CICT can enhance its investment returns and contribute to the continued vibrancy of Orchard Road. I believe CICT is the top notch retail REIT which will continue to be a valuable income-producing asset to reward long-term investors in the years and decade to come.

Thanks for reading.

With love & peace,

Qiongster

Live Poor to Be Rich: Frugality leads the Path to Financial Freedom

In a world often obsessed with material possessions and instant gratification, the concept of frugality can seem counter intuitive. Yet, the path to financial freedom often lies in the simple act of spending wisely. By embracing a frugal lifestyle, individuals can build wealth, reduce stress, and achieve long-term financial stability.

We can own a car in Singapore but do we really need a Mercedes or Tesla to flaunt our status, when there are lower cost alternatives such as Japanese brands, Toyota and Honda or Chinese brands, BYD and Omoda? Do we run or walk faster when we wear Nike, Adidas running shoes and sneakers instead of Decathlon or brandless shoes which cost just a fraction? Do we sleep better and more soundly when we live in a bungalow or condo penthouse instead of a 2-room or 3-room HDB? Is the $20 chicken rice in restaurants more nutritious and digest more efficiently by our bodies that the $5 one sold at coffeeshops?

Frugality is not about deprivation or sacrificing your quality of life. It's about making conscious decisions about how you spend your money. By prioritizing needs over wants and avoiding unnecessary expenses, you can significantly increase your savings and investment potential.

Key Strategies for Frugal Living

1. Create a Budget: A detailed budget is the cornerstone of frugal living. Track your income and expenses to identify areas where you can cut back. Allocate fixed amounts for savings or investments and expenses based on your cashflows. Consider using budgeting apps or spreadsheets to simplify this process.
2. Set Clear Financial Goals: Having well-defined financial goals can provide a sense of direction and motivation. Whether you're saving for a down payment on a home, building an emergency fund, or investing for retirement, having a clear purpose can help you stay focused.
3. Cook at Home: Dining out at restaurants or even hawker centres can be expensive. By cooking at home more often, you can save money and enjoy healthier meals. Meal planning and batch cooking can also help you save time and reduce food waste. Adopting intermittent fasting regimes, going vegan or cutting down on meat consumption can also help to reduce expenses and possibly improve on health. 
4. Shop Smart: Compare prices, look for sales, and use coupons to save money on purchases. Consider buying generic brands or store-brand products, which are often cheaper than name-brand alternatives. Shop online at e-commerce platforms such as Lazada, Shopee, Taobao or at factory outlets for clothes, shoes and apparels could be more cost effective than buying from physical stores.
5. Reduce Energy Consumption: Conserving energy can significantly reduce your utility bills. Turn off lights when you leave a room, unplug electronics when not in use, and consider upgrading to energy-efficient appliances. Air conditioners are a good-to-have in our humid hot weather but as an alternative, 2 fans blowing left and right can do a good replacement job.
6. Avoid Impulse Purchases: Before making a purchase, take a moment to consider whether you truly need it. Avoid impulse buys and stick to your budget.
7. Limit Subscriptions and Memberships: Review your monthly subscriptions and memberships to see if there are any that you can cancel or reduce. Do we need a gym membership when we could actually do dumbbells and weights at home or even exercise statically free without any equipment?
8. Find Free or Low-Cost Activities: There are plenty of free or low-cost activities to enjoy. Explore the parks, museums, beaches and libraries for entertainment options.
9. Build an Emergency Fund: An emergency fund can provide a financial safety net and prevent you from going into debt. Aim to save at least three to six months' worth of living expenses.
10. Invest Wisely: Once you've built an emergency fund stashing away cash, consider investing your spare savings. Research different investment options and choose strategies that align with your risk tolerance and financial goals.

Beyond the financial benefits, frugal living can also have a positive impact on your overall well-being. By reducing stress and anxiety related to money, you can enjoy a more peaceful and fulfilling life. Additionally, frugal practices such as having a minimalist mindset can contribute to a more sustainable future by reducing waste and conserving resources.

Frugality is not about deprivation or sacrificing your happiness. It's about making informed choices and prioritizing your long-term financial goals. We should not buy many things that we like or want but rather buy the few things which we really need. The whole idea is about extracting value from our purchases. By adopting a frugal lifestyle, you can build wealth, reduce stress, and achieve financial freedom. Remember, small changes can make a big difference over time.

Just some ranting on a sunny Sunday on the first day of September. Thanks for reading.

With love and peace, 

Qiongster