DBS (Development Bank of Singapore)

[weijian]

I suppose the idea is to enlarge the base, in this case by 10%, so that subsequent effort will be accelerated by 10%.  Doing a one-off large special dividend will do but I suspect the result of a one-off bump in the share price may not be quite as desirable for DBS?

An alternate to enlarge base so that subsequent effort will be accelerated by 10%, the BOD could  bump up the dividend by 10% to achieve the same effect. I believe DBS is 1 of those that does a quarterly "fixed" dividend.

Of course, both moves -  either enlarge base OR bump up fixed dividend - achieve similar capital returns to shareholders. The only difference I see is the different accounting on the share capital/reserves as I mentioned earlier. That is why is puzzling me.

I reckon I am probably overthinking on this! Regardless on the matter of capital returns, DBS is making the right moves to return them.

To recap, just 10months ago, DBS announced a 10:1 bonus issue - which had the effect of increasing its share base by 10% and diluting pro-forma EPS by 10% as well. Everyone loves having more pieces of pizza even though each piece is smaller and so, it probably had the effect of bumping up its share price.

Barely 7 months after the 10:1 bonus, DBS kick started its 3billion SBB program and has spent ~130mil in the last 2weeks. Arguably, the SBB is buying more expensive bonus shares now - bumping up their pro-forma EPS, which had just earlier been diluted. Because they are (probably) buying more expensive shares, they end up buying less and so would have a lower EPS improvement than it could have been.

From the capital allocation perspective of a long term shareholder of DBS (eg. Temasek), it definitely isn't the optimized path. The only optimization is for exiting shareholders who have more shares to sell for a higher price (due to the bonus issue) to a confirmed buyer (SBB program). Not trying to point fingers here.

Nonetheless, DBS OPMIs probably don't care much because their TSR has indeed been world class this year.

[weijian]

3.3% cost of (perpetual) debt looks pretty low and I was wondering why DBS would be redeeming this perpetual securities. So I looked back at the issue doc 5 years ago and it becomes clear - The interest rate resets itself every 5 years with the formula "prevailing 5-year U.S. Dollar Treasury Rate plus 1.915 per cent. per annum".

The current US 5 year treasury is ~4.6%, a far cry from ~1.5% in Feb2020's. So rolling on this debt would mean a ~6.6% cost of debt, which is excessive when you already have "excess capital".

DBS Group Holdings Ltd’s U.S.$1,000,000,000 3.30 per cent. Perpetual Capital Securities First Callable in 2025 issued under the U.S.$30,000,000,000 Global Medium Term Note Programme

The redemption price (the “Redemption Price”) for the Securities will be the Optional Redemption Amount, as set out in the pricing supplement dated 20 February 2020 in respect of the Securities, being an amount equal to U.S$1,000 per Calculation Amount, together with distribution accrued but unpaid (if any) to (but excluding) the Redemption Date

https://links.sgx.com/FileOpen/DBSH%20US...eID=830262

[weijian]

The book equity of DBS as end June 2025 is 68.6bil. With a current market cap of ~150bil, it is close to 2.2x book value! And just about 1year ago, most of us were thinking that 1.5x was "way too expensive" (and active investors should probably start selling at 1.8x)

I think this is even more incredible with the below:

(a) Interest rates are reducing. DBS itself has signaled that 2025 profitability will be lower.

(b) Personally, I think the capital allocation taken by Mgt doesn't accrue a lot of value (issuing bonus shares and then starting a SBB that buys them back at much higher P/Bs just a little while later). Of course, Mr Market doesn't care about what I think.

A rising tide lifts all books. The smaller ones actually rise higher than its own height while tankers like DBS also benefit if the tide is big enough. One has to burn a lot of brain power just to select the right small boat to benefit but a "no brainer" ride on a tanker brings similar benefits as well. In our era of indexing and passive investing, capital flows are a good problem to have I suppose especially if those capital flows into the companies you are vested in.

"A bubble is a bull market that you did not invest in" was an epiphany that knock some sense into me. I recall myself thinking about them a lot many moons ago. I am glad that I don't think about them much these days...

[Shrivathsa]

There is an interesting article in Reuters on this, though the caveat is that they are looking at banks in USA and Europe.

https://www.reuters.com/commentary/break...025-10-08/

The gist of the article is that investors are turning a blind eye to the risks in banks .

Using the same metrics, with DBS ROE expectation of 17% and 2.2 PTB, the implied equity cost is 7.7 which is one of the lowest in the lowest 15 years.

One saving grace is that unlike USA, MAS will not likely allow any risky behaviour by a local bank.

The relentless rise is fascinating, also worrying and of course also enriching, which is what makes it difficult to sell.

The logic in some ways is that if DBS is in trouble, then one better get out of the market.

I know that is not very mathematically sound or value oriented, but that is the logic for me holding it.