OCBC shares worth $50?

Is OCBC shares worth $50? Maybe even more. Recently OCBC made waves when it announced the offload of its 33.5% shares in United Engineers (UE) to a consortium led by Yanlord Group and Perennial Real Estate Holdings. The block sale consisted of shares held under OCBC, Great Eastern Holdings and the founding Lee Family. News of the deal propelled OCBC share price to a 5-year high and triggered a mandatory takeover offer for the rest of United Engineers shares.

The United Engineers Deal

The offer price for the UE deal was $2.60 and represented a price-to-book value of about 0.88. The fact that OCBC sold its stake in UE at a price below book value reflected the poor market sentiments. After all, United Engineers is still making healthy profits and is not considered a distressed asset at all. For the record, UE made a profit of $7.1 million in 1Q2017, a decline of 25% from last year. Hence, in my point of view, the block shares sale should have fetched higher price.

For OCBC, the deal would unlock value for shareholders and made business sense as property development is not OCBC’s core business. The sale is worth an estimated $550 million and is a windfall for OCBC. The bank cost per UE share should be about $1.60.

OCBC shares

On the other hand, minority shareholders of UE would be very unhappy that the takeover price is at such underwhelming level and personally, I would be very surprised if the consortium can successfully acquire all the remaining shares. Regardless the outcome, the low-ball offer only serves to vindicate that the big boys always win in the stock market. Those retail shareholders who bought United Engineers shares at $3.40 a few years ago would be staring at substantial losses if the takeover deal is successful.

The divestment of United Engineers is long overdue as Monetary Authority of Singapore (MAS) had mandated local banks to dispose non-core assets by 2006. It has been more than a decade past the compliance deadline but local banks like OCBC and UOB are still holding to various non-core assets like property firms. However, onerous [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: March 23, 2019 — 3:57 pm

10 Comments

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  1. Hi,

    If OCBC was really sitting on a huge goldmine of unpublished assets, then surely

    1. OCBC

    and

    2. The accountants

    would be having a very long chat with MAS about accounting procedures, non-disclosure of assets and taxation?

    Taking the opposite case, if they were hiding liabilties of the amounts you suggest, then there would be huge issue.

    Buy back of shares is something I am not in favour of. The money should be redistributed to the shareholders to spend/invest as they wish. Often it is solely a means of the management self-rewarding, as their pay is dependent on share price and not dividend returns to shareholders.

  2. OCBC ,Still going strong, currently it’s performing the most strength of the 3 Singapore banks.

    Slow long trade, but it has given us a solid 16% profit since our entry in January.

  3. The title certainly caught my full and undivided attention.

  4. Wa clickbait title.

  5. Hi Laurence,

    Hope you enjoy the article.

    Regards,
    Gerald
    https://www.sgwealthbuilder.com

  6. Hi Benjamin,

    Glad that the title grabbed your attention.
    I do hope that you find the article useful.

    Regards,
    Gerald
    https://www.sgwealthbuilder.com

  7. Hi Max,

    Yes, OCBC shares is very bullish now.
    Glad that you have made money but I have missed the boat!

    Regards,
    Gerald
    https://www.sgwealthbuilder.com

  8. Hi Bob,

    Do you know where we can obtain the list of OCBCs assets? If so, please enlighten.
    Again, their financial report already indicated “unrealized valuation surplus” for their assets. So these assets are accounted for.

    On shares buy back, it depends on how management deploy excess cash. Of course from shareholders’ point of view, they would want dividend payout.
    But from long term perspective, shares buy back can be good for the company.

    Regards,
    Gerald
    https://www.sgwealthbuilder.com

  9. Hi Gerald,

    Thanks for the rpely.

    Yep, but I did not write the above article and put the heading “Hidden assets” and then go on to talk about “OCBC could be sitting on hundreds of billions worth of assets and most of them are probably non-core assets waiting to be divested at the right opportunities”.

    The declared “unrealised surplus” of 7 billion accounts for about 1.5% of the bank’s total assets.

    I was objecting to the ridiculous implication that OCBC could be sitting on hidden assets worth “hundreds of bilions”, roughly the same size as the entire bank. Click bait, as Benjamin pointed out.

    Page 214 of the latest annual report lists buildings, and accounts for roughly 4 billion of the unrealised valuations, leaving just 3 billion in equities.

    Share buyback has become a bit of a theme, with companies even taking on debt to buy back shares. There is, IMO, too much incentive in some companies for the management to work against the owners of the company in order to boost their own salaries through bonuses based on P/E ratios.

    Regards,

    Bob.

    PS please can you stop the two annoying popups when I access your website? I already subscribe, but I still have to hit the blasted moving targets.

  10. Bob,

    We can have disagreements over the valuations of OCBC shares. But frankly, you don’t have to be rude.
    If you find my website annoying, you don’t have to patronize. Also, nobody forces you to subscribe to my website.
    By giving such unconstructive comments, it only reflects your poor character. This is my website and I have every rights to implement anything I like.
    I would proceed to remove your subscription. Also, you are not welcome to visit my website.

    Regards,
    Gerald
    https://www.sgwealthbuilder.com

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