DBS 2019 & Q1 2020

2019 Financial Highlights

+ EPS $2.46, grows yoy for past 5 years, except decease from 2015 to 2016

+ Total income $14.5b, grows yoy for past 5 years

+ Div $1.23, grows yoy for past 5 years

- ROE 13.2%, fluctuate for past 5 years

+ NAV $19.17 as of 31 Dec 2019, grows yoy for past 5 years

2020 Q1 Performance

OCBC 2019 & Q1 2020

2019 - 5 Years Financial Highlights

OCBC Group Performance Q1'20

Revenue $2,490 - 7% yoy, -15% qoq

Operating profit before allowance - 12% yoy & qoq

Net profit -43% yoy, -44% qoq

Banking

Revenue $2,373M  +7% yoy, - 4% qoq

Operating profit before allowance + 8% yoy, +3% qoq

Net profit -28% yoy, -22% qoq due to increase in allowance.

Great Eastern

Revenue $69M  -82% yoy, - 78% qoq

Operating profit before allowance -90% yoy, -88% qoq

Net profit -94% yoy, -92% qoq due to unrealised MTM lossess.

Management Statement Q1'20

OCBC well-positioned for this unprecedented crisis

Extent of economic fallout very uncertain, recovery unlikely until 2021 at earliest; watchful of impact to near-term earnings growth 

Maintain long-term strategy; well-diversified franchise with strong capital, liquidity and funding position 

Confident of OCBC’s strong track record of delivering sustainable earnings over economic cycles 

Ex-FX impact, loan growth to be muted; will continue to pro-actively support customers

Shore up allowances with forward-looking MEVs to recognise uncertain operating environment 

Overall cumulative credit costs over the next two years estimated to be between 100-130bps, higher than GFC, close to SARS but lower than AFC. Variance depends on effectiveness of the relief programmes and the duration of suspension of business activities across the region 

Remain vigilant of vulnerable sectors. Near-term economic weakness and uncertainty to raise NPL ratio to between 2.5% to 3.5%; NPL ratio reflects extent of projected effect of government relief measures

NIM compression expected in subsequent quarters from full effect of rate cuts; focus on asset composition and CASA deposits 

Cost management to be further tightened and managed in line with revenue expectations 

Monitor market developments closely to assess dividend payment; share buybacks suspended, priority to support customers and franchise during this pandemic

Capital Allocation - May 20

Share 16% 

My US portfolio is performing better than SG portfolio. This reaffirms my direction - focus capital gain from US stocks, cash flow from SG stocks.

- Sold Uber with small capital gain. 

Warchest 29%

Warchest to Shares ratio - 66:34. 

Warchest is earning min interest (avg 1.2%), resulted in interest loss vs bank loan (1.8% - 1.2%) and imply I do not maximize my cash on hand. 

How can I better deploy my Warchest to reduce/ eliminate interest loss? 

Actions taken in May

- Signed up for Singlife insurance - with 1st $10k earns 2.5%.

- Partial refund $10k to CPF OA for cash used for property. 

Plan:

- Increase my SG share investment - target: DBS, OCBC & UOB.

SRS 4% 

Invested in Singapore saving bond with min interest earned (~1%). 

Plan to invest in shares - DSB, OCBC & UOB .

CPF 23% 

OA balance can cover 22 months loan installment.

Emergency fund 13%

Earning interest ~ 2%.

Can cover > 2 years living costs if something go wrong. This should be furthered reduced to 1 year.

Warchest & Emergency Funds

Overall:

Warchest/ shares ratio remained high, which should be reduced for better return on capital. 

Emergency fund can cover > 2 years living costs, which can be further reduced (1 years should be good enough).

Here is the list of accounts where i have parked my war chest and/or emergency fund:

Standard Chartered BonusSaver 

1.6% interest (fulfill partial criteria only - salary bank in, credit card spending > $500, bill payment)

Standard Chartered Esaver

1.05 - 1.2% interest.

Drawback - Only for 2 months on incremental balance. 

Singlife Account

First $10,000 - 2.5% interest

Next $90,000 - 1%

Benefits - Get insurance benefits based on account balance

Drawback - Interest rate subject to change (no guarantee)

I get this idea from Heartlandboy blog:

https://heartlandboy.com/review-singlife-account-insurance-savings-plan/

SRS 

Used to buy Singapore saving bond, wait for opportunities. If things go wrong, this can be withdrawn & use as emergency fund, with 5% penalty.

Forex Currency FDs 

~2% interest

CPF OA 

Always ensure OA balance sufficient for 1 year housing loan installment

Capital Allocation

For large corporation, capital allocation is to maximise the company/ shareholders’ value, usually one of CEO or CFO priorities.

In my view, capital allocation is equally important for an individual.

Capital allocation allows me to think how should I allocate my wealth to different assets, ie stocks, FD, properties  and bonds, with the objectives to create stable cash flows and maintain reasonable investment return.

My current capital allocation ratio (high level):
Stocks  ~20%, average dividend return 3%
Cash/ War Chest  ~40%, average interest return 1%
Property ~15%, NIL (need to pay loan interest)
CPF ~25%, average coupon return 2%

Overall return is not fantastic, kind of conservative capital allocation. This shall change this year when opportunities arrived due to market uncertainty.