DBS Plans to Buy Citi’s Taiwan Assets: Should Shareholders Be Happy?

February 10, 2022

It’s been an eventful year so far in 2022 for Singapore investors. If you’re invested in US stocks, you would have seen massive declines so far in 2022 (mitigated somewhat by recent gains).

As my colleague Billy noted, it could have spurred you to ask yourself if it’s worth buying the dip in US stocks.

Meanwhile, closer to home, Singapore’s stocks have actually done pretty well for investors so far in 2022.

And if we’re thinking that Singapore companies are just sitting still, then the doubters have been proved wrong given the recent acquisitive nature of some of the country’s banks.

That acquisition bug has now been caught by the country’s largest bank; DBS Group Holdings Ltd (SGX: D05).

Two weeks ago, DBS announced it would acquire Citigroup Inc’s (NYSE: C) Taiwan consumer banking business for the operation’s net assets plus a premium of S$956 million in cash.

So, does it work out to be a deal that DBS shareholders should be happy about?

Buying a wonderful business at a fair price

For DBS, words from the legendary “Sage of Omaha” ring true. Warren Buffett once opined that:

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.

That’s exactly what DBS are doing with its acquisition of Citi’s retail business in Taiwan. The price tag DBS is proposing to pay could be considered “fair” at a 1.8x price-to-book (PB) ratio and a price-to-earnings (PE) ratio of 9x.

That PE ratio is based off Citi’s Taiwan franchise having generated an average annual (pre-Covid) net profit of S$250 million.

What’s more, this highly-profitable business was generating upwards of 20% Return on Equity (ROE) before Covid-19 hit.

Even after that, in FY 2020, the business still notched up very respectable ROE of 14%.

Accelerating growth in Taiwan

For DBS, this purchase will also provide a huge boost to its expansion plans in Taiwan – a very affluent market on both the retail and institutional banking fronts.

According to the estimates from DBS itself, the purchase will accelerate DBS Taiwan’s growth by over 10 years as it absorbs synergies and benefits from economies of scale.

DBS Taiwan will also become the largest foreign bank by net assets and will expand – significantly – its assets under management (AUM), loan book and funding capabilities (see below).

DBS Citi Taiwan deal

Source: DBS investor presentation, 28 January 2022

The ability to cross-sell, as well as up-sell, across product categories was one key driver of United Overseas Bank Ltd’s (SGX: U11) own deal to acquire Citi’s Southeast Asian assets.

Similarly, DBS will have a much higher credit card count as well as seeing its high net worth (HNW) individual count increase by nearly four-fold.

That will no doubt be a boon to DBS’s own strong wealth management franchise at the group level.

Finally, DBS management expects the acquisition to be accretive to both earnings per share (EPS) and ROE upon completion.

Dividend policy still intact

Of course, for investors in any of Singapore’s banks, the safety of dividends comes into play when buying their stocks.

Thankfully, for shareholders, the proposed acquisition will have no impact on DBS and its ability to fund its dividend payout (given the purchase will be funded by excess capital).

The deal is expected to close in the middle of 2023. Overall, I believe DBS shareholders will be pleased with this acquisition given the growth profile of Citi’s Taiwan business as well as the quality of its retail franchise.


Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of DBS Group Holdings Ltd.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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