DBS Bank - Overview And Financial Performance

Part 1: Financial Performance and Current Issues
In this section, students are expected to provide:
• An evaluation of the company’s brief recent history and financial performance over time and also include peer group analysis.
• Conduct ROE for the company following the DuPont ROE approach and include peer group comparison.
• An analysis of the current issues facing the company, the industry it operates in, and explain the impact of the issues on the company’s future earnings

Part 2: Valuation Models
The second part/section of the assignment should contain the estimation of the value of the company’s share using:
 Dividend valuation model (DDM)
 Free Cash Flow to Equity model (FCFE)
 Price/Earnings Ratio model (P/E)
 Price/Book Value Ratio model (P/B)
You are expected to use the Capital Asset Pricing Model (CAPM)- discussed in topic 3 - to estimate the required rate of return or discount rate needed for each model. For CAPM estimation.

DBS Bank - A Renowned Bank in Singapore

DBS Bank is a renowned company in a Singapore also recognise as ‘The development bank of Singapore Limited’ is a transnational banking entity. This corporation deals in offering various kinds of financial services such as personal banking and corporate banking option to cater all the needs of its customers.

DBS Bank is a public Ltd Company listed under Singapore stock exchange with SGX: D05 stock index in the banking industry. Entities strive hard to achieve all its goals before its competitions to overcome the existing market competition in this particular industry.

Revenue and profit comparison is shown in the above chart of three companies such as DBS, OCBC and UOB. It reflects the revenue of 2016 is less than DBS Bank. This graphic representation shows the capability of DBS bank in comparison with these two competitors who are unable to beat this bank.

Majority of shareholders of DBS belongs to Singapore with around 99.14%, 0.61% shares held by Malaysian shareholder and least share of 0.25% is held by other shareholders from all across the world. This line chart also shows the monopoly of the company by offering its significant shares only to the domestic users instead of giving to the external users.

DBS bank comes into operation in the year 1968 in Marina Bay in Singapore where headquarter of this entity is located to handle all its banking and financial services transactions. This bank has set up by the government of Singapore in the year 1968 under the special act to take command over industrial financing activities of an entity. This entity’s name has revised in July 2003 by making some changes in its business operations. Firm’s motive is to capture the large base of the customer base as well as higher market share in the external entity. DBS banking entity has experience of 50 years since 1968 by serving different areas such as East Asia and South East Asia.

Various Products of this entity includes Retail banking, corporate banking, investment banking, mortgage loans, private banking, wealth management, credit cards, finance, and insurance. All these products of the bank get successful due to the higher number of employees working under this firm. The company is handling 22194 personnel satisfied with the perks offered by DBS bank helps in uplifting the business process of this enterprise in a lesser time period.

The main aim of this entity is to help of all the manufacturing industries who are sick units as this bank gives financial assistance in upgrading its business units within Singapore. To offer new services to its customers, DBS bank acquired post office savings bank in the year 1877 to provide a facility for depositing cash through a machine. This facility launched by this bank to offer hassle-free services to all its users to conveniently use the banking services.

Public Ltd Company Listed Under SGX Stock Index

Above chart shows the share price movement of DBS bank with straight time index shows the calibre of the development bank of Singapore Ltd. The results show the increasing trend of shares as compared with STI, which is declining in comparison with the DBS bank. DBS group holdings hold total shares of 12.37% and on another STI held just 0.55% which is worst performance as against the DBS group.

Particulars	Formula	2015	2016	2017
Revenue		10801	23718.8	32005.9
Net Profit		4454	4238	127.994
Net profit Margin	Net profit/Revenue*100	41%	18%	0.40%

Profit is one of the aims of an entity operating in an external entity whose aim is to offer its services to get the attention of all their users. Ratio analysis is one of the important techniques to compare the performance of the firm of all the previous years. It is also treated as performance evaluation toll in which various elements of the financial statements are analyzed using various ratios. Financial ratios are categorized into various categories such as profitability, liquidity, efficiency ratios determined by an entity to know its actual calibre. The motive of the firm is to overcome all its weaknesses incur in the financial year by replacing the same with the strengths of the business.

Profitability ratios will be helpful for an entity in identifying the earned profit in a particular financial year which helps in creating a perfect balance in an entity. When an entity made the sale of goods and services, their aim is to earn a profit by meeting all the incurred business costs from the sale of all the products to know the amount of the earned profit or loss suffered by the business. Role of a finance manager is to increase the wealth of all their shareholders of the business as shareholder invests their precious money in an entity for a specific period.

Net profit margin ratio analyses the net profit earned in a year in comparison with the sales and the revenues earned by an entity. This ratio states the net profit margin of three years starting from 2015 to 2017 to identify the historical profitability performance of the business enterprise.

The above chart shows the net profit margin that highlights the declining of profit from 2015 to 2016 and lastly to the 2017 year. The amount of the profit gets reduced from its previous year due to the excessive burden of the tax imposed on an entity.

Particulars	Formula	2015	2016	2017
Total assets		457834	481570	445420.6
Revenue		4454	4238	127.994
Total asset turnover	Sales/Total assets	1%	1%	0.03%

The total asset turnover ratio comes under the efficiency based which helps in assessing the efficiency of an entity in terms of its available assets. This ratio shows the participation of assets in generating sales and return for a particular span of time. It is important to contribute the large part of the assets in generating higher returns to showcase the ability of the business. A total asset includes the amount of fixed as well as current assets in analyzing the performance of the company. Total assets turnover is categorized into two categories such as fixed as well as current assets in which assets are categorized according to the time period. Asset held for short span of time is considered as current and on another hand, assets held for long-term purpose comes under fixed asset.

Revenue and Profit Comparison with Competitors

The performance of the business is ascertained by an entity by taking total assets which will be compared with the sales and the revenues generated by a firm in a financial year. Total assets turnover is declining from 2015 to 2017 due to a decrease in the total assets as well as revenue from one period to another. The reason for decreasing both the elements is inter-related related with each other. The effect of one element also influences another element which needs to be balanced to get the fruitful results in return.

Particulars	Formula	2015			2016			2017
		DBS	UOB	OCBC	DBS	UOB	OCBC	DBS	UOB	OCBC
Total assets		457834	316011	390190	481570	340028	409884	445420.6	358592	454938
Revenue		4454	6670	7653	4238	6843	6936	127.994	7373	8218
Peer asset Turnover	Sales/Total assets*100	0.97%	2.11%	1.96%	0.88%	2.01%	1.69%	0.03%	2.06%	1.81%

Asset turnover tests the calibre of an entity named as DBS Singapore Ltd as compared with its competitors existing in the similar market are Overseas- Chinese Banking Corp Ltd and United Overseas Bank Ltd. These two company’s performance is compared with the performance of the development bank to know its actual power. The above graph portrays the image of the company in front of its internal, as well as external stakeholders as every minute action of the business, affect all the stakeholders. Stakeholders include employees, investors and all the shareholders who held the significant share of the bank will participate in the annual general meeting of the firm.

Asset-based turnover of UOB leads both its market rivals such as DSB and OCBC but the performance of DSB bank is very low in relation to UOB and OCBC. This is due to the decreasing figures of assets and revenue in the year 2017 due to the external market factor. Competition in the market can be treated as one of the important factors in affecting the higher performance of the company as the revenues of the firm gets decreases instantly from two years starting from 2015.

DuPont analysis is a measuring tool to check the performance of an entity for a particular year by testing the singular efficiency of all the elements of its business. It aims to determine the return on equity to evaluate the profit earned by an entity by trading on its own equity in a financial year. Return on equity gets affected with the external market competition which requires reactive market strategies to predict the future in advance to improve the existing market conditions.

DuPont Analysis of DBS Bank for 2017
1	Operating Profit Margin
	Gross Revenue	(-)	Fixed Expense	(-)	Variable Expense	(=)	Net Operating Income
	$32,006		$0		$8,250		$23,756
	Net Operating Income	(+)	Other Income	(-)	Interest Expense	(=)	Net Income
	$23,756		$6,226		$18,533		$11,449
	Net Income	(+)	Interest Expense	(÷)	Gross Revenue	(=)	Operating Profit Margin		Earns
	$11,449		$18,533		$32,006		$0.937
2	Asset Turnover Ratio
	Gross Revenue	(÷)	Total Assets	(=)	Turnover Ratio		Turns
	$32,006		$445,420		0.072
3	Return on Assets (ROA)
	Earns	(x)	Turns
	Oper. Profit Margin	(x)	Turnover Ratio	(=)	Return on Assets
	0.937		0.072		6.731%
4	Return on Equity (ROE)
	Total Liabilities	(÷)	Total Equity	(=)	Debt/Equity Ratio		Leverage Ratio
	$413,307		$32,113		12.87
	Interest Expense	(÷)	Total Liabilities	(=)	Average Interest Rate		AIR
	$18,533		$413,307		4.48%
	Return on Assets	(+)	Return on Assets	(-)	Average Interest Rate	(x)	Debt/Equity Ratio	(=)	Return on Equity
	6.73%		6.73%		4.48%		12.87		35.652%

Data Source of DBS Bank: DBS Bank Ltd Pref Share, 2017. < https://financials.morningstar.com/income-statement/is.html?t=MU7&region=sgp&culture=en-US> [Accessed on 16^th March 2018.]

DuPont Analysis of UOB for 2017
1	Operating Profit Margin
	Gross Revenue	(-)	Fixed Expense	(-)	Variable Expense	(=)	Net Operating Income
	$9,077		$0		$0		$9,077
	Net Operating Income	(+)	Other Income	(-)	Interest Expense	(=)	Net Income
	$9,077		($443)		$3,549		$5,085
	Net Income	(+)	Interest Expense	(÷)	Gross Revenue	(=)	Operating Profit Margin		Earns
	$5,085		$3,549		$9,077		$0.951
2	Asset Turnover Ratio
	Gross Revenue	(÷)	Total Assets	(=)	Turnover Ratio		Turns
	$9,077		$358,592		0.025
3	Return on Assets (ROA)
	Earns	(x)	Turns
	Operating Profit Margin	(x)	Turnover Ratio	(=)	Return on Assets
	0.951		0.025		2.408%
4	Return on Equity (ROE)
	Total Liabilities	(÷)	Total Equity	(=)	Debt/Equity Ratio		Leverage Ratio
	$321,742		$36,850		8.73
	Interest Expense	(÷)	Total Liabilities	(=)	Average Interest Rate		AIR
	$3,549		$321,742		1.10%
	Return on Assets	(+)	Return on Assets	(-)	Average Interest Rate	(x)	Debt/Equity Ratio	(=)	Return on Equity
	2.41%		2.41%		1.10%		8.73		13.799%

Data Source of UOB Bank: United Overseas Bank Ltd ADR, 2017. < https://financials.morningstar.com/balance-sheet/bs.html?t=UOVEY&region=usa&culture=en-US> [Accessed on 16^th March 2018.]

DuPont Analysis of OCBC for 2017
1	Operating Profit Margin
	Gross Revenue	(-)	Fixed Expense	(-)	Variable Expense	(=)	Net Operating Income
	$9,118		$0		$0		$9,118
	Net Operating Income	(+)	Other Income	(-)	Interest Expense	(=)	Net Income
	$9,118		($9,306)		$3,316		($3,504)
	Net Income	(+)	Interest Expense	(÷)	Gross Revenue	(=)	Operating Profit Margin		Earns
	($3,504)		$3,316		$9,118		$0.021
2	Asset Turnover Ratio
	Gross Revenue	(÷)	Total Assets	(=)	Turnover Ratio		Turns
	$9,118		$454,938		0.020
3	Return on Assets (ROA)
	Earns	(x)	Turns
	Oper. Profit Margin	(x)	Turnover Ratio	(=)	Return on Assets
	-0.021		0.020		-0.041%
4	Return on Equity (ROE)
	Total Liabilities	(÷)	Total Equity	(=)	Debt/Equity Ratio		Leverage Ratio
	$415,930		$39,008		10.66
	Interest Expense	(÷)	Total Liabilities	(=)	Average Interest Rate		AIR
	$3,316		$415,930		0.80%
	Return on Assets	(+)	Return on Assets	(-)	Average Interest Rate	(x)	Debt/Equity Ratio	(=)	Return on Equity
	-0.04%		-0.04%		0.80%		10.66		-8.983%

Data Source of OCBC Bank: Overseas-Chinese Banking Corp Ltd, 2017. < https://financials.morningstar.com/balance-sheet/bs.html?t=O39&region=sgp&culture=en-US> [Accessed on 16^th March 2018.]

	DSB	UOB	OCBC
Operating Profit Margin	$0.937	0.951195	$0.021
Asset Turnover Ratio	0.071856	0.025313	0.020
Return on assets	0.067312	0.024078	-0.041%
Return on Equity	0.356522	0.137992	-8.983%

Majority of Shareholders from Singapore

The combined figure of all the three banks operating in a similar market that is the banking industry is judged on a single criterion using DuPont analysis to know the calibre of all the companies. In terms of operating margin, both the firms are leading such as DSB and UOB and OCBC is not in the competition due to decreasing performance.

Asset turnover of the entire firm is not good but best out of all worst performance of the three companies are of DSB bank as the performance is little better than all other companies in the similar industry.

Similarly, return on asset’s trend is similar to the asset-based turnover as both are linked to the total assets held by an entity for a particular span of time.

Favourable performance of the two companies named as DSB and UOB reflecting in the above mention figure excluding one company whose performance is continuously declining due to the negative figures. On a ranking scale, DSB ranked as the first position then UOB and third position goes to OCBC due to lower performance as compared to its rivalries.

The banking industry is prone to several risks as a minute change takes places in the banking regulations will affect the performance of the banks. One of the risks faced by the banks operating in Singapore is related to the solvency issues. Due to increasing economic growth, the ratio of credit also gets increases with the passage of time which further affects an entity like DSB.

Changes in the credit rating agency will increase the difficulties for an entity in dealing with the credit solvency issues. According to the external study, Singapore banks have an insolvent amount of $1.6 billion which calls around 17% of the total equity applied in tier 1 at the end of September 2016.

Bank take and give credit to run their banking business as they earn interest by giving loans to its customers and in exchange of which they charge interest for every month along with the total principal of the loan. The situation distressed occur when an entity like DSB faces solvency issues due to a minimum holding some amount with the central banking authority of Singapore as a security deposit. The current solvency an issue occurs when an entity is not able to meet the demand of security deposit held with the higher authority and wholly gives out the amount in loans.

The current issue suppresses the overall earnings of an entity in the future as the liquidity of the firm gets decreased which will directly affect its external as well as internal users. Due to lower liquidity, an entity is not able to give salary to its employees which will result in spoiling the image of the company in front of its regular or potential customers. Due to this situation, the amount and percentage of giving loans getting lower which contracts the corporate customers of the firm who takes loans in expanding their business.

Banking and Financial Services Transactions

The financial statements of the company show decreased earnings of the firm which does not attract external investors who invest in an entity after evaluating its financial performance by analyzing the financial statements.

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Online

Shareholder’s statistics of DBS bank, 2016. Available through: < https://www.dbs.com/annualreports/2015/pdfs/downloads/shareholding-statistics.pdf> [Accessed on 16^th March 2018.]

DBS Group Holdings Ltd, 2017. Available through: < https://sginvestors.io/sgx/stock/d05-dbs/share-price-history> [Accessed on 16^th March 2018.]

United Overseas Bank Ltd ADR, 2017. < https://financials.morningstar.com/balance-sheet/bs.html?t=UOVEY&region=usa&culture=en-US> [Accessed on 16^th March 2018.]

Oversea-Chinese Banking Corp Ltd, 2017. < https://financials.morningstar.com/balance-sheet/bs.html?t=O39&region=sgp&culture=en-US> [Accessed on 16^th March 2018.]

DBS Bank Ltd Pref Share, 2017. < https://financials.morningstar.com/income-statement/is.html?t=MU7&region=sgp&culture=en-US> [Accessed on 16^th March 2018.]

DBS group holdings Ltd share price history, 2017. <https://sginvestors.io/sgx/stock/d05-dbs/share-price-history > [Accessed on 16^th March 2018.]