My Forever Portfolio. Averaging down DBS


Price: S$21.75
P/B: 1.2

The talk of the town these days, as I gather from interactions on the social platform InvestingNote, seems to be very much about DBS Bank (or just DBS in everyday references).

  • What do you think is a good entry price for buying DBS?
  • I think [DBS] is getting [more] attractive and sweeter [with] each [passing] day…
  • Dbs, wait[ing] to “jiak” (eat) more …

I can understand the interest in buying DBS bank shares these recent days when bank stocks in general are snared by Covid-19, Fed’s interest rate cut, and a possible crude oil price war. I too am very interested in buying DBS bank shares because it is an excellent
company to own, the current downward pressure on its share price notwithstanding.

Taking advantage of this current sell-down of bank stocks, I decided to average down on DBS shares (current average is about S$24).


DBS is a multinational banking and financial services corporation that has operations in Singapore, Hong Kong, the rest of Greater China, South and Southeast Asia, and internationally. It operates through consumer banking/wealth management, institutional banking, treasury markets, and other segments that offer trading and Islamic banking services.


DBS, headquartered in Singapore, operates approximately 280 branches across 18 markets and has a market share of 59 billion.

It is the largest bank in South East Asia by assets and among the larger banks in Asia, with total assets of S$579 billion as at 31 Dec 2019.

It is at the forefront of leveraging digital technology to shape the future of banking, and has been named “World’s Best Digital Bank” by Euromoney.

It has also been recognised for its leadership in the region, having been conferred “Asia’s Best Bank” by The Banker and Euromoney, and “Asian Bank of the Year” by IFR Asia.

DBS has also been named “Safest Bank in Asia” by Global Finance for eight consecutive years from 2009 to 2016.

Results and Ratios

In the fourth quarter report (31 December 2019), DBS reported the following:

1. Income increased 10% year on year to S$14.5bn.

2. Net profit increased 14% year on year to S$6.39bn.

3. Group Net Interest Margin (NIM) improved from 1.85% (2018) to 1.89 (2019).

4. NPL rate remained unchanged at 1.5%.

5. Cost-income ratio improved one percentage point to 43%.

6. The liquidity coverage ratio was at 139% and the net stable funding ratio was at 110%. The Common Equity Tier 1 ratio was at 14.1% while the leverage ratio was at 7.0%, all comfortably above regulatory requirements.

7. ROE was at a new high of 13.2%, reflecting improved profitability and quality of franchise.

8. Dividend increased 10% to $1.32 annualised.

Why did I average down on DBS?

Simply because I believe the 3 local banks (DBS, OCBC, and UOB) are the bedrock of Singapore’s economic success. I just can’t see it any other way.

The 3 local banks make up almost 36% of the Straits Times Index, with DBS being the largest constituent of the STI (15.2%, with OCBC at number 2 at 11%). SPDR Straits Times Index ETF has a combined 40% exposure to DBS, OCBC and UOB.

You know what, should any thing unfortunate happen to DBS, I’m very sure the Government will step in to help it out. Buying DBS shares to me is a fail-safe investment. I can go to sleep every night with the assurance that when I wake up the next day, DBS is going to be there still.

DBS has a very capable CEO in Piyush Gupta. Under his leadership since 2009, DBS has been on a growth path, and registered a record net profit of $6.39 billion for the fiscal year 2019, up 14 percent year-on-year. Should this downturn eventually morph into a nightmare like the Asian financial crisis of 2017/18, I cannot think of a better CEO than Piyush Gupta to lead DBS forward.


The share price of DBS took a slow beating when Covid-19 spread within
Singapore and in the region. DBS has been bracing for Covid-19 impact and is doing its best to cushion the blow. Hopefully the coronavirus situation eventually goes away come summer, and should that happen, DBS expects a full year revenue impact of around 1-2%.

Right now, this negative impact on revenue basically comes from 2 main loan areas, namely, manufacturing supply chain and customer services.

Manufacturing supply chain, while facing liquidity inadequacy and reduced capacity operation in these short term of 3-4 months, is expected to make a turn for the better because demand for their goods is still intact. DBS is therefore not too concerned about these loan accounts.

Of greater concern to DBS are loan accounts from the service industry, such as tourism, hotels, retail, and aviation. Many service companies have seen demand displaced and revenue lost if not substantially reduced. DBS’s exposure here amounts to some S$20 billion. DBS reckons 90% of these loan accounts made to such large corporations
such as Genting and SIA to be relatively secure. The remaining 10% (about S$2 billion) of these accounts are under pressure and therefore at risk.

So NLPs are expected to rise as many of these virus-impacted businesses have their cashflow disrupted.

To mitigate the impact brought on by the outbreak of Covid-19, DBS has implemented “split teams” and “work from home” to ensure minimal service disruption. This was made possible because of the bank’s digital capabilities.

DBS has also started liquidity relief for its customers. It is providing a 6-month moratorium on principal repayment for customers with good credit records (SME property loans in Singapore and Hong Kong; and mortgage loans for retail customers in Singapore).

As new cases of coronavirus infection slow in China, the country is gradually getting back to work. So the million dollar question is, is the impact of Covid-19 on global supply chain over? Depending on who you ask, the answer varies.

While workers are slowly returning to work, it will still take a while, probably a very long while, for China to return to its pre-coronavirus production capacity.

China’s purchasing managers’ index, a measure of China’s manufacturing and service sector activity, plunged to 35.7 in February from January’s 50 (numbers below 50 indicate activity contracting). All eyes will be watching China’s PMI index very closely, and so will I be watching.

In the meantime, the market remains jittery, and stock prices remain volatile. Such is the new normal for now, and it’s time to look out for good stock bargains, and DBS to me is one.

The emergency Fed rate cut

Fearing the US economy would fall into a recession due to the coronavirus, the Fed pushed through an emergency rate cut of half a percentage point on 3/3/2020. This bold attempt to give the US economy a jolt is however a blow to financial stocks.

Rate cuts only mean one thing for banks: lower spreads and lower margins. When the Fed cuts rates, banks’ revenues from the interest rates they charge on loans will in turn get squeezed, thus leading to an overall hit on their NIM. With the expectation that the Fed will cut interest further to zero (even more pressure on bank margins), bank stocks began to trend down even further.

At close on 9/3/2020, DBS ended at S$21.15, slumping 8.04 per cent given its greater sensitivity to lower rates relative to its peers.

For now, DBS has a decent dividend yield 5.8%, its financial position is solid, and its management is stellar. Besides, the plunging share price now is indicative of a capital gain on a future rebound. All 3 local banks recovered spectacularly after each crisis.

How do I average down on DBS?

There are some whom I’ve interacted with on InvestingNote who are waiting for the bottom or close to the bottom before buying DBS. Apparently S$18 is the magic figure.

I see the logic in this. After all, who doesn’t want to buy something precious at the cheapest price possible? But the thing is, nobody really knows when the bottom will occur.

In my opinion, only 2 persons can “buy” at the bottom and “sell” at the top. One is God Almighty, and He possesses all power and knowledge to actually do just that, hypothetically speaking. The other is a liar who can only talk about buying at the bottom and selling at the top, but never actually doing so. Luck may have helped once in a while but never all the time.

Since I’m not divine or a spinner of yarns, I can’t possible buy at the bottom or even think or say that I can buy at the bottom.

Therefore, I decided to embark on averaging down on DBS. Presently, I don’t think it is wise to devour the entire position on DBS with just one huge bite seeing that there is the possibility of DBS’s share price trending lower.

Instead of averaging down with the same amount each time, I plan on buying a little first, and gradually increasing the lot size as the share price decreases … first a bullet, next a bazooka, then a missile, if you get my drift.

I’ve bought DBS at $21. The next price is $19, then $17, and so on and so forth.

When do I stop? I seriously don’t know … probably when the money runs out, or when DBS has rebounded from whatever bottom it is going to be.

[I have my eyes fastened on OCBC and UOB as well, and looking for a good price to enter new positions on these 2 bank stocks.]

Buy, sell or hold? I think it’s okay to do some buying, because things are cheaper. But there’s no logical argument for spending all your cash, given that we have no idea how negative future events will be. What I would do is figure out how much you’ll want to have invested by the time the bottom is reached – whenever that is – and spend part of it today. Stocks may turn around and head north, and you’ll be glad you bought some. Or they may continue down, in which case you’ll have money left (and hopefully the nerve) to buy more. That’s life for people who accept that they don’t know what the future holds.

But no one can tell you this is the time to buy. Nobody knows.

Howard Marks. Latest memo from Howard Marks: Nobody Knows II; March, 9, 2020.

Disclaimer: I am only an amateur investor and nothing you read here on my blog constitutes financial advice.  I write here to detail my investments, strategies, and analyses.  Feel free to read at your own risk.  Should you need financial advice, consult a licensed financial advisor.