Since July 1, UOB has surged 11.9%. Until July, UOB’s performance had lagged DBS and OCBC's. The banks announce their 1H2026 results on Aug 6 and 7.
To understand what has happened, it is worth going back to an interview with DBS group CFO Chng Sok Hui last year. She had said DBS started articulating an increase in its dividend as far back as 2017. In 2023, during its investor day, DBS announced it was going to look at a step-up in dividends. DBS also communicated a share buyback and a capital return dividend. There was a clear articulation of how the bank was thinking about surplus capital relative to its operating range, Chng had said.
At $70, DBS's dividend yield is 4.6%. The other metric DBS communicated to investors during its 2023 investor day was an ROE of 17% on a stabilised basis. With a clear dividend policy and an ROE target, investors and analysts could calculate a valuation for DBS using valuation models including the popular Gordon Growth Model. The only metric holding the banks back is their cost of equity, which most analysts place at 9% to 10%.
Thilan Wickramasinghe, head of research at Maybank Securities Singapore, has suggested Singapore banks deserve a lower cost of equity, which would lower the denominator in the model and lead to higher valuations.
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DBS gives clear guidance of its outlook. In its FY2025 results presentation in February, DBS’s group CEO Tan Su Shan had said net profit this year is likely to be “slightly below 2025’s”. However, DBS has ample management overlays which it can write back if needed.
Unlike DBS, both OCBC and UOB have a 50% dividend payout policy compared to DBS’s absolute amounts. Even then, both banks have rallied strongly. Markets look forward and it could be that their net profit is better than estimates, which would improve ROE and dividends. This lowers the denominator and raises the numerator in valuation models, leading to higher price targets.
The main concern, though, is that at current levels, historical price-to-book ratios are high: DBS is trading at 2.9 times; OCBC is trading at 1.98 times and UOB is at 1.49 times.
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In addition to tweaking data in these models, if investors need to diversify out of the US, the Singapore dollar is an attractive currency. If funds flow into Singapore, they have to look for assets. The banks are large, liquid and well-run.
On the same thread, if there is a flow of funds into Singapore, the rally should broaden out, and that has started. The Straits Times Index rose by 225 points week-on-week to close at 5,469 during the week of July 6-10. The upside for the STI remains at 5,740. Indicators are not excessively high and have legs to run.
