Which bank will benefit the most from a rise in SIBOR?

A wrong move made!And another wrong move!Its so hard to find good investment opportunities these days. Anyway, with all the talk about how interest rates are so low now and the only way forward is for it to move up gradually, let us try to position ourselves for this expectation shall we?

SIBOR stands for Singapore Interbank Offer Rate - simply put,interest rates for deposits,loan e.t.c rise if SIBOR rises.

NIM stands for Net Interest Margin which is measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders(for example, deposits), relative to the amount of their (interest-earning) assets. )

Development Bank of Singapore (DBS)
See how it correlates with the SIBOR......when sibor goes up, DBS NIM ( net interest margin goes up)

United Overseas Bank ( UOB)

Hmmph, NIM seem to be negatively correlated with SIBOR....

Overseas Chinese Bank of Singapore (OCBC)

There don't seem to be any correlation between SIBOR and NIM. Is there?

With hyperinflation and a gargantuan wave of hot money coming in, are you ready?

Comparison of Wastewater Treatment Companies Listed in SGX

Ok a reader requested us to provide an overview of the waste water treatment. Before we go on, it should be prudent to note that we are not experts, in fact, we are just "wannabes", you know..those act smart kind who always puts up their hands when the teacher asks questions but answer wrongly......so pls verify...The information is culled from various sources, such as prospectus, reuters, annual reports, analysts reports..e.t.c.

-------------------------------------------

The wastewater companies listed in SGX are Hyflux, Asia Environment, Sinomem, Epure and Bio-treat and they are highly dependent on the China market, with the exception of Hyflux which has diversified to MENA ( Middle-east and North Africa).

In terms of treatment methodology, Sinomem and Hyflux mostly focus on the use of membrane technology while the rest mostly focus on the use of the biological treatment. (Note: mostly is used as often they combine both membrane and bio treatments)

In very very general terms, membrane technology is generally used in pharmaceutical or electronics industry to filter out the small stuff or to recycle water, or desalinate seawater into drinking water. The biology method is generally used to treat urban water before discharging into the environment.

In terms of revenue, Hyflux, undoubtedly makes the rest bite the 'dust'.

-----------------------------------------------------------------------------

Their customers are segregated into municipal or private enterprises ( industrial). Generally, payment terms from municipal government are longer than private enterprises and range between 6 and 18 months. But, the risk of non payment by municipals are lower. As can be seen, most of their revenue are from municipals.

-----------------------------------------------------------------------------

In addition, this industry is a highly competitive industry with numerous companies competing for a piece of the pie in China. In the prospectus of Bio-Treat, the following was mentioned.

Quote "Our Directors believe that there are currently more than 350 Chinese companies that are active in the environmental protection industry in the PRC, mainly in the field of water and water treatment or drinking water treatment. Our Directors expect the number of players in this market to increase to up to 1500 by 2005 and possibly up to 6000 in 2010."Unquote

As noted by the following from DBSV 2006 report. The following are the major players. This could be useful for comparing the fundamentals.

------------------------------------------------------------------------------
This industry is generally project based and income is non-recurring, in industry jargon, it is called "Turnkey" which means they complete the whole project from start to finish and hand it over to the customer for them to operate.

However, there is this trend towards achieving recurring income through the model of BOT ( build-operate-transfer) where the wastewater companies build the wastewater thingy as though its their own, operate it for a period of time under a contract ( 10-30years) , earn recurring income from producing the 'clean' water for the customer, and then handing the thingy over to the customer after the contract ends. Other jargon for recurring income is TOT. Aiyah, as long as you see a O in the middle means recurring lah!

It should be noted that for a company to embark on BOT, they need a lot of capital to do so as they built the projects as their own. With this current 2008-2009 credit crunch, where funding is difficult, many such BOT projects are stalled.

-----------------------------------------------------------------------------------
Generally, for "Turnkey" projects, the wastewater companies require an initial down payment of 20%-30% before commencing on the project, with another 30% to 60% payment paid according to percentage of completion of the relevant project and terms of the contract. There is usually a retention fee of 5%- 10% of the total contract value as quality retention monies which are generally held for a warranty period of generally one year after completion ofthe installation

Given that most of their business is in China and given the importance of collecting money especially in China, we thought it's vital to see how these companies fare in terms of how efficient they get their money back and how efficient they manage their inventory.

Again Hyflux leaves the rest in her wake with a collection period of only 49 days.....In terms of inventory turnover period, Epure is doing pretty well....
------------------------------------------------------------------------------
Let us look at their profitability ratios based on only 1 year.

Epure seems to be doing pretty decent and has quite a lead among its peers in terms of Net Profit Margin. Gross Profit Margin is purposely placed their as this ratio has not undergone layers of 'possible' manipulation by the management. Anyway, its reflective of the "room" they can play with in case their cost of sales ( direct raw materials go up).

--------------------------------------------------------------------------------------
In our opinion, this kind of business requires a lot of customisation as every customer is unique, depending on the local regulations, specific type of pollutant produced or environment, so its quite a tough business to be in.

Though one can take comfort in the Chinese Government's strong push for better enviromental legislation and their increase in investment budget for this sector as spelt out in their 11th Five-Year Blueprint (2006 to 2011) issued in March 2006.

So should you invest in this sector, you decide!

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:


Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

Comparison of the Big 3 Local Banks in Singapore

‘We try to stick with businesses we believe we understand. That means they must be relatively simple and stable in character. If a business is complex or subject to constant change we’re not smart enough to predict future cash flows. Incidentally that shortcoming doesn’t bother us.’ - Warren buffet

As we always believe in understanding what we invest in and absolutely subscribe to the quote by Warren Buffet above, we decided to start a project that seeks to understand the underlying business model of the different industries in Singapore. In this first post of this project, we are looking at the local banking industry in Singapore and compare among them, in the hope, to understand them better. As new information is picked up, we will just add into it. In time to come, we should be looking into Plantation industry , Oil and Gas related Industry in Singapore, Property Development industry,Waste treatment industry, Telecommunications industry e.t.c. As we learn, we share cos sharing is caring. Yeah like real....... Does anyone still believe this sissy crap?

Comparison of income sources between DBS, OCBC and UOB banks.

Net Interest Income - Money earned by banks from taking " low interest bearing" customers deposits to make "higher interest bearing" loans out and earning the interest spread.

Non Interest Income - Any income other than the above. See below

Generally, it has been mentioned that non-interest income adds to the stability of the bank due to diversification of income streams. OCBC is therefore considered more diversified. It is not unexpected as they own a very large proportion of Great Eastern which contributes to their Non-Interest Income portion.

Comparison of Fees and Commission Income ( a component of Non Interest income) between DBS, OCBC and UOB Bank.
Personally, UOB bank presented their breakdown differently from how both OCBC and DBS presented. What does "Investment related" mean? It can mean both "stock broking" and " "Investment Banking"? They also have this component called "Futures Broking" which should fall under "Stock Broking" in DBS or OCBC's way of break down. Maybe the regulators should ensure similar terms used so as to compare more easily.Does Trade-Related under UOB mean "Trade and remittances" under OCBC and DBS? Question Mark?Does "Services charges" under UOB mean "Deposit related" under OCBC and DBS?

Anyhow, look at the fees from UOB's Credit Card and Fund Management. Among the 3 banks, UOB earns the most.Under Loan-related fees, DBS earns the most.

Comparison of Loans to Customers By Geography

Aaaaargh! Can't find any such breakdown for UOB! Hey what's up man!Can you guys follow the crowd?

Anyway, from here it can be seen OCBC's strategy of venturing into Malaysia while DBS's strategy is to venture into Greater China ( includes HK). They have neglible loans to US or Europe, since "Rest of the world" constitutes a mere 5% for DBS and 4% for OCBC.

Comparison of Loans to Customers By Industry

Top 2 industries for DBS is Housing loans and Building and Construction

Top 2 industries for OCBC is Housing loans and Building and Construction.

Top2 industries for UOB is Housing loans and Financial Instuitions, investment & holding companies.

It seems among the 3 banks, UOB has lent out the most loans to Financial Instituitions in absolute amount $16 billion. Only OCBC lents to Agriculture, mining and quarrying ....

Comparison of Customer Deposits ( Cheap Financing for the Banks) Look at the savings deposit of DBS bank! Actually, its quite obvious. This table is a waste of our time. Shit.

Comparison of Non-Performing Assets among the 3 banks What is a non-performing asset?A debt obligation where the borrower has not paid any previously agreed upon interest and principal repayments to the designated lender for an extended period of time. The nonperforming asset is therefore not yielding any income to the lender in the form of principal and interest payments.

For example, a mortgage in default would be considered non-performing. After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lenders might write-off the asset as a bad debt and then sell it at a discount to a collections agency.

The percentage of total loans that are considered as non-performing is highest with UOB bank. Of these loans, the percentage that is > 180 days overdue is also the highest with UOB bank at 1.02%. Eh please don't run on bank ok....if you do..u are damn stupid cos Singapore Banks are super duper safe. This is just a comparison of high-class banks and of cos comparisons will bring out one less strong right? Maybe its easier to get a loan from UOB as they seem less stringent?

Comparison of Staff Headcount and expense of the 3 banks

It was pretty unexpected as we had always thought that DBS, being the biggest local bank would have the most number of employees. Surprisingly, it has the lowest, while UOB has the most number of employees. The total amount that is spent on DBS employees is the highest though and their mean "expense ( this could include other things other than salary)" is $85,541.1, nearly twice their 2 rivals.

OK this post is just to compare the 3 banks for a better understanding of their business. So we did not include Tier 1 ratios and the stuff.

If you like this blog, do help SGDividends by adding us as your favourites via this link,THANK YOU!:

Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team