DBS share price lost gangbuster form

From $14 in February 2016, DBS share price went on a magnificent gangbuster form to hit a high of $31 in May 2018, representing an increase of more than 100% in two years. The berserk rise of DBS share price certainly created much wealth for shareholders. However, the bullish form was as good as it gets as DBS share price subsequently went through a correction since early May to reach a low of $24.90.

Has the bubble finally burst for DBS share price or should investors keep faith with Piyush Gupta’s team? At the big picture, the business fundamentals have not changed but market confidence have been shaken due to the trade wars currently taking place. Arising from this, data revealed that there were three waves of attacks on DBS share price in the past few months, leading to the loss of form for DBS shares. In this article, the investment merits of DBS are examined.

DBS share price in for a wild ride?

For sure, it had been a roller-coaster ride for shareholders. When you have the sort of volatility like DBS share price is currently having, you are unlikely to sleep well even if you are a long-term investor. But DBS management is not sitting back either.

The devastating decline prompted DBS to initiate a rare shares buyback on 6 July 2018. Prior to this, the last shares buybacks by DBS was almost two years ago, in September 2016. Following the July 2018 shares buyback, a series of shares buyback were done in August 2018. These actions provided critical support for DBS share price.

DBS share price

According to SGX filing, management bought back 900,000 shares on 10 August 2018, 750,000 shares on 13 August 2018, 650,000 shares on 16 August 2018 and 750,000 on 21 August 2018. In total, DBS spent $93 million on the shares buyback. Given the aggressive shares buyback, it is no wonder that the bearish form of DBS share price got halted.

Investors may be tempted to think that the buyback of shares is a strategy by management to prop up DBS share price. However, in my opinion, this is not the style of DBS management. Prior to the correction, the bullish form of DBS share price in the past two years was built upon solid business fundamentals. Revenue grew from $9.17 billion in FY2014 to $10.38 billion in FY2017 while net income increased from $4 billion to $4.3 billion in the corresponding period.

While business had improved in the past few years, the Return-on-Equity (ROE) had actually declined, falling from 10.7 in FY2014 to 9.3 in FY2017. This is the lowest among the three banks as OCBC recorded ROE of 10.8 while UOB’s was 9.7. The falling ROE stood out like sore thumb for DBS, so I guess the management resorted to buying back shares from the open market in a bid to improve the performance metric of the management. In doing so, the equity will fall, thereby increasing ROE. Given that DBS share price had [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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