One of the largest local banks in Singapore, OCBC share prices closed at $7.77, a six-year low. The last time OCBC shares traded below $5.00 was during the Great Financial Recession, recording a low of $4.14 on 6 March 2009.
OCBC will be releasing its full year financial results on 17 February 2016. However, based on its 3Q results in October last year, the Net Asset Value for each OCBC’s share was $7.78, slightly above today’s closing price. It is still premature to assess whether OCBC is an undervalued stock because the latest data has not been released. But given the current weak market sentiments, the stock price is expected to slide further.
The non-performing assets (NPAs) were S$1.93 billion as at 30 September 2015, up 41% from S$1.37 billion a year ago. The year-on-year increase in NPAs was largely attributed to the classification of a few large corporate accounts associated with the oil and gas services sector. Thus it is evident that the downturn in the oil and gas services industry has a big impact on the bank. Given that 2016 has witnessed a massive correction in oil price, it is expected that OCBC will be hit as well.
OCBC is one of my favorite stocks because of its long history in Singapore and also the fact that the bank also owns Great Eastern Holdings, the largest insurance group in Singapore and Malaysia in terms of assets and market share. Its agency force in Singapore and Malaysia is about 20,000-strong. This asset provides OCBC Bank with an almost impenetrable investment moats because having Great Eastern as it’s subsidiary allows more coordinated initiatives in sales management and product development through bancassurance partnership.
In my view, it is unlikely that OCBC will trade at the level of $4.14 again, even with the onslaught of a massive stock market crashes. This is because the banking industry has evolved and moved on from the previous crisis. Notwithstanding this, in the stock market, never say never. Thus, my entry-level for OCBC will be $6.00 and I will exit at $9.50.
The current bear market provides a window of opportunities to buy blue chips at a reasonable level but investors should make sure to diversify their portfolio to include hard assets like bullion. Despite the massive declines across global stock markets, gold prices has surged 4% since the start of 2016, thus cementing its status as a tested insurance policy for investors’ portfolio. In Singapore, you can purchase gold and silver from leading dealers like BullionStar, which offers bullion at competitive prices.
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SG Wealth Builder