---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 219835
conversation_id: 68473658-f182-4034-91cc-d6748445b9a5
citations: 1
created: 2026-05-31 19:03:57Z
---

# How does OCBC’s valuation compare to peers, and what justifies its premium/discount?

# OCBC valuation vs. Singapore-bank peers — discount to DBS, parity with UOB

## 1. Where OCBC trades today (CLSA's headline peer table, 23 Apr 2025)

CLSA's Singapore-banks recommendation/valuation summary [1]:

| Stock | Rec | Last Px (S$) | TP (S$) | P/B 25CL | Target P/B 25CL | PE 25CL | Target PE 25CL | Div Yield 25CL |
|---|---|---|---|---|---|---|---|---|
| **DBS** | O-PF | 42.88 | 42.20 | **1.83x** | 1.81x | 11.00x | 10.83x | 7.0% |
| **OCBC** | **HLD** | 16.59 | 15.90 | **1.30x** | 1.24x | 9.92x | 9.50x | 5.8% |
| **UOB** | HC O-PF | 35.95 | 39.20 | **1.28x** | 1.40x | 10.13x | 11.05x | 6.7% |
| Average | | | | 1.55x | 1.54x | 10.48x | 10.49x | 6.6% |

The picture: **OCBC trades at a deep ~30% P/B discount to DBS (1.30x vs 1.83x)** and sits roughly **at parity with UOB on P/B** (1.30x vs 1.28x). On PE, OCBC is the cheapest of the three (9.9x vs DBS 11.0x and UOB 10.1x), but on dividend yield it offers the *least* support (5.8% vs DBS 7.0% and UOB 6.7%). Updated post-1Q25 (13 May 2025), CLSA still calls all three "close to fair value", lifting TPs to DBS S$45.00, OCBC S$16.20 and UOB S$40.50 [2].

## 2. Source of the discount to DBS — three structural reasons

### (a) Lower and deteriorating ROE
OCBC's 25CL ROE is forecast at **12.0%, falling from 13.6% in 2024**, versus DBS at **14.9% in 25CL (down from 17.2% in 2024)** [10][11]. DBS's near-five-percentage-point ROE premium is the single biggest justification for its richer P/B — the Gordon-growth framework CLSA applies to OCBC uses ROE 12.2%, CoE 9.5%, growth 3% [7], so the higher OCBC's ROE relative to CoE, the higher the deserved P/B. OCBC's ROE simply doesn't earn DBS-like multiples.

### (b) Sharper NIM compression and higher rate sensitivity
1Q25 starkly exposed this:

| 1Q25 metric | DBS | OCBC | UOB |
|---|---|---|---|
| NIM QoQ | -3bps | **-11bps** | +0bps |
| Gross loans QoQ | +1.2% | +0.9% | +1.0% |
| PiP YoY | +6% | **-2%** | +7% |
| NPAT YoY | -2% | -5% | 0% |

OCBC's **11bps QoQ NIM contraction was "starkly inferior" to peers** [8][6], "the big negative surprise" of the quarter, driven by loan yields tightening faster than deposit costs and deployment of liquidity into lower-yielding high-quality assets. CLSA flags OCBC as having **"the highest sensitivity to falling rates"** of the three [3]; with SORA still declining and Fed cuts in train, this is a structural drag on FY25-26 earnings.

### (c) Inferior capital-return yield
Total payout yield (ordinary + special + buybacks) [4]:

| Bank | Ordinary | Special | Buybacks | **Total Yield** |
|---|---|---|---|---|
| DBS | 5.6% | 1.4% | 0.8% | **7.8%** |
| OCBC | 4.7% | 0.9% | 0.7% | **6.3%** |
| UOB | 5.2% | 1.4% | 1.2% | **7.8%** |

OCBC's S$2.5bn two-year capital-return programme (of which only ~10% is special payout) [7] is materially smaller relative to market cap than DBS's or UOB's, and OCBC was the last to begin buybacks. The 150bps yield gap behind DBS is the second pillar of DBS's premium.

## 3. Why OCBC does NOT trade at a discount to UOB — and what would close that gap

On headline P/B (1.30x vs 1.28x), OCBC actually carries a **slight premium to UOB**, which CLSA argues is unjustified [5]:

- **UOB earnings-growth advantage**: UOB delivers stronger 24-27CL EPS CAGR than OCBC [3].
- **Lower UOB rate sensitivity**: in a falling-rate world, UOB's lower asset-side beta is a benefit OCBC doesn't share [3][5].
- **UOB yield support**: 7.8% total payout yield against OCBC's 6.3% [4].
- **UOB GGM ROE assumption**: 13.0% vs OCBC's 12.2% [7][12].

What's keeping OCBC's premium in place despite that disadvantage: investor reticence on UOB management, UOB's higher SME exposure and lingering doubts about Citi-Asia integration synergies — the buy-side prefers "the tried-and-tested DBS" and views the Citi deal as "unconvincing" [14], and OCBC's possible M&A targets (Panin Bank in Indonesia, Alliance Bank in Malaysia) are themselves viewed as "less attractive at this time" [9]. So both #2 and #3 stocks carry company-specific overhangs; the market has effectively chosen to price OCBC and UOB at similar P/Bs while penalising both versus DBS.

## 4. How CLSA derives OCBC's S$16.20 target — three-method blend

CLSA values OCBC on a **simple average of three metrics** [7]:

1. **DDM** — cost of equity **9.5%**, terminal dividend growth 4%.
2. **PE** — **8.7x 12m fwd**, set at -1 stdev to the 10yr historical average given macro volatility.
3. **GGM-derived P/B** — assumes ROE **12.2%**, CoE **9.5%**, long-term growth 3%.

Critically, **DBS uses CoE 9.8-10.0%** and **UOB uses CoE 9.4%** — DBS gets a higher CoE penalty because it's more cyclical at the ROE level, while UOB gets the lowest CoE [12]. OCBC sits in the middle. The CoE differential alone doesn't explain the P/B gap; the ROE numerator does.

## 5. Reality check from the most recent OCBC print (3Q25 press release, 7 Nov 2025)

OCBC reported 3Q25 NPAT S$1.98bn (+9% QoQ, flat YoY), NIM **1.84%** (-34bps YoY, -8bps QoQ), CIR 40.0%, credit costs 16bps, NPL ratio 0.9%, and **annualised ROE recovered to 13.4%** [15]. The ROE step-up is supportive — the +140bps versus the 25CL forecast of ~12.0% [11] is exactly the type of upside that, if sustained, would re-rate OCBC's GGM-derived P/B and narrow the discount to DBS. But the **34bp YoY NIM compression** confirms CLSA's structural rate-sensitivity concern.

## 6. The verdict — what justifies OCBC's discount/premium

| Versus | OCBC's relative position | Justified? | Why |
|---|---|---|---|
| **DBS** | P/B discount ~30% | **Yes** | Lower ROE (12% vs 15%), -11bps NIM print vs -3bps, 150bps yield deficit, higher rate sensitivity, larger HK/China CRE asset-quality exposure that DBS shares but with stronger coverage [13]. |
| **UOB** | Slight P/B premium | **No (per CLSA)** | UOB offers higher yield, lower rate sensitivity, faster EPS CAGR and is "the most attractive valuations" of the three [5]. OCBC's premium reflects investor distaste for UOB-specific issues (Citi integration, SMEs) rather than OCBC fundamentals. |

**Bottom line**: OCBC's discount to DBS is structurally earned — a real ROE/yield/rate-sensitivity gap, not a sentiment overhang. The discount narrows only if OCBC sustains the 3Q25 13.4% ROE recovery [15] and stabilises NIM near the ~2% guidance level [7]. Its premium to UOB, however, is fragile — CLSA argues this is the wrong way round and keeps UOB as top pick, with OCBC the *least* preferred Singapore bank [2][3][5].

---

**Sources**
[1] Singapore banks (Yield wield) — CLSA (23 Apr 2025) — recommendation & valuation summary table — 607956678LinqAlpha.PDF
[2] Singapore banks (On the defensive) — CLSA (13 May 2025) — TP revisions and fair-value commentary — 607959041LinqAlpha.PDF
[3] Singapore banks (On the defensive) — CLSA (13 May 2025) — "Still prefer UOB ahead of DBS and OCBC" — 607959041LinqAlpha.PDF
[4] Singapore banks (On the defensive) — CLSA (13 May 2025) — Yield breakdown table — 607959041LinqAlpha.PDF
[5] Singapore banks (Yield wield) — CLSA (23 Apr 2025) — UOB preference and OCBC concerns — 607956678LinqAlpha.PDF
[6] OCBC – HLD (Business update first thoughts) — CLSA (9 May 2025) — 1Q25 metrics comparison — 607958690LinqAlpha.PDF
[7] OCBC – HLD (Business update first thoughts) — CLSA (9 May 2025) — Valuation methodology + guidance — 607958690LinqAlpha.PDF
[8] Singapore banks (Stuck in neutral) — CLSA (20 May 2025) — OCBC NIM contraction context — 607959993LinqAlpha.PDF
[9] Singapore banks (Stuck in neutral) — CLSA (20 May 2025) — Investor preference: DBS > UOB > OCBC — 607959993LinqAlpha.PDF
[10] Singapore banks (Yield wield) — CLSA (23 Apr 2025) — DBS financial summary table — 607956678LinqAlpha.PDF
[11] OCBC – HLD (Business update first thoughts) — CLSA (9 May 2025) — OCBC 23A-27CL financial summary — 607958690LinqAlpha.PDF
[12] UOB - HC O-PF (Asean dream) — CLSA (5 Jun 2025) — UOB valuation methodology — 607961354LinqAlpha.PDF
[13] UOB - HC O-PF (Asean dream) — CLSA (5 Jun 2025) — UOB 23A-27CL financial summary — 607961354LinqAlpha.PDF
[14] Singapore banks (Stuck in neutral) — CLSA (20 May 2025) — Investor pushback on UOB — 607959993LinqAlpha.PDF
[15] OCBC Group Third Quarter 2025 Results Press Release — OCBC (7 Nov 2025)

## Citations

- [15] **ocbc 3q25 results press release.pdf** · external

