1

Company valuation

2

Table of Contents
1.0. Company profile of DBS group .............. Error! Bookmark not defined.
1.1. Organisation operational area ............... Error! Bookmark not defined.
1.2. DBS group holding limited net interest income position Error! Bookmark
not defined.
2.0. SWOT analysis .................................... Error! Bookmark not defined.
3.0. Porters Five Forces analysis of DBS ...... Error! Bookmark not defined.
4.0. Ratio analysis ..................................... Error! Bookmark not defined.
5.0. Du Pont analysis ................................. Error! Bookmark not defined.
6.0. Valuation ........................................... Error! Bookmark not defined.
6.1. Assumption ........................................ Error! Bookmark not defined.
6.2. CAPM model ....................................... Error! Bookmark not defined.
6.3. Risk-free rate ..................................... Error! Bookmark not defined.
6.4. Market Risk premium .......................... Error! Bookmark not defined.
6.6. Dividend discount Model ...................... Error! Bookmark not defined.
6.7. Free cash flow to equity model .................. Error! Bookmark not defined.
6.8. Price earnings ratio model ........................ Error! Bookmark not defined.
6.9. Price book value ratio method ................... Error! Bookmark not defined.
6.10. Net tangible asset backing method .......... Error! Bookmark not defined.
7.0. Valuation Discussions ............................... Error! Bookmark not defined.
7.8. Conclusion .............................................. Error! Bookmark not defined.
REFERENCES ................................................. Error! Bookmark not defined.




3

1.0 Company profile of DBS group:
DBS group holding limited is incorporated in republic of Singapore in 1968. The
organisation is an investing holding company which operates through the main
subsidiary of DBS bank limited. DBS is enlisted in Singapore Stock Exchange.
Primary activity of DBS is to invest in its fully owned subsidiary like small and
medium size enterprise, corporate and investing banking services etc. In spite of
investing in fully owned subsidiary the group has also so many associates and
joint ventures. It has prepared its financial report through group accounting
system.
Organisation operational area:
The organisations financial business is segmented in the four parts customer
or private banking, institutional banking, treasury and others. Customer or
private banking serves the individual customers a range of products and financial
services. Institutional banking serves the institutional clients including the bank
and non-bank financial institution, large corporate, government linked
companies and small and medium sized business. Treasury provides the treasury
service to the institutions and private shareholders, corporations and to other
market participants. Other is encompassed a range of activities from corporate
decisions. The customer of the DBS holding company spreads in other countries:
Hongkong, Singapore, India, China, Indonesia, and Malaysia and other
countries. The organisation provides different services: currents and savings
account, loan and home finance, credit card, fixed deposits and investment
products. Enterprise banking segment provides the credit facilities like; over
draft, account receivable purchase, trade services and financing, hire purchase
and govt. financing etc. Corporate and investing banking segment provides the
modified financial solution to the corporate and institutional clients. The DBS
Holding organisation provides the equity services through DBS Vickers securities.
The financial statement of the DBS is prepared in accordance with the FRS and
promulgated by the ASC. The organisations income statement is not included in
the financial statement. In the recent year the groups again adopt new revised
INT FRS. DBS groups subsidiaries have the power to govern the financial and
operating policies. The subsidiaries company has 50% voting rights (Robinson,
2008). DBS group follows the acquisition method to account the total business
4

performance. The acquisition is measured as the date fair values of the asset
transferred, the liabilities incurred and the equity interest issued. Acquisition
related cost is expensed as incurred. Identifiable assets are acquired and
liabilities or contingent liabilities are assumed as initially at the fair value on the
date of acquisition.
Joint venture of the DBS group are jointly controlled the group together through
the contractual arrangements.
1.1. DBS group holding limited net interest income position:
Revenue($
millions)
2009 2010 2011
Net interest
income
6114 5699 6555






6114
5699
6555
2009 2010 2011
Net Interest Income ($ Million)
Net Interest Income ($ Million)
5

The organisation net interest income in 2009 is $ 6114 million. That is decreased
in 2010 at the rate of 6.79%. The reason behind this change is the new adopted
FRS which is applied in the current financial year. In 2011, the net interest
income of the group has also increased ($ 6555 millions). That is 15.02%. That
affects the total income of the organisation in a large extent (7.40%). The
organisations group performance is quite good in the recent years. Total income
of the DBS has increased in this year (7.98%). Expense of the organisation has
reduced in great extent (17.18%). In this year DBS did not provide any goodwill
charges but in 2010 organisation provided the good will charges ($ 1018
million). So automatically the expense of the DBS group increase.


Share of profit associates with the organisations profit i.e. 24.5%. It also
increases the DBS profit in the year 2011. Profit before tax of the organisation
increases in this year at 61 percentages. It indicates that the organisation
performance in the recent year is very good. DBS net profit for the year is $3290
million which increases in this year 76.88 percentages. It extends the
organisations operational work to more efficient way (Sorensen & Willamson,
2007).

32%
-68%
2011
Tota Income Increased Expenses Decreased
6

2.0. SWOT analysis:
2.1. Strengths:
The stronghold of DBS is its market share in Singapore and Hong Kong. The
products and service offerings of DBS are diversified in nature and will help them
in occupying more customers and generating bigger revenues (Krschner,
2008). Global Finance awarded DBS Best Bank in Singapore and Safest bank in
Asia. These awards will take the brand image of the company at a higher level
earning more customer loyalty. They have expanded their business in 15
countries serving around 4 million customers. In comparison to the other players
in the industry the dividend yield provided by DBS is much better. The work
force of DBS also contributes to the success of the company. They have around
20000 experienced and skilled professionals working for them in all their
branches (Elton et al. 2009).
2.2. Weakness:
The main weakness of DBS is their low operations in the European and US
market. Another main problem being faced by DBS is that the major portion of
the revenues is coming from the banking and treasury sector. The other
offerings are not being capable to generate the expected revenues (Brealey et
al. 2008).
2.3. Opportunity:
DBS has a good reputation and brand image in the banking industry. The asset
management industry is also growing and the market entry barriers are very low
(Bodie et al. 2008). Growth in the rate of retail savings and investments in the
Asia pacific region provides a scope for taking their market share to a higher
level. Developing neighboring countries like India offer opportunities of
expansion and growth to the company.
2.4. Threats:
The effects of the global economic meltdown are still being faced by many
industrial sections lowering the rate of investments (Levy, 2011). Moreover
ambiguity in the Asian market and the global financial market will also affect the
operations of DBS. The competition in the banking sector is increasing with more
European banks entering Asian market and the market space is getting
7

compressed. Liquidity regulations also affect the global banking sector
(DeAngelo et al. 2007).
3.0. Porters Five Forces analysis of DBS:
3.1. Threats of new entrants (Moderate):
Banking sector is growing rapidly and though new banks are not coming up as a
threat; other multinational banks are entering the Asian market. Banks like
Standard Chartered, Deutsche Bank are growing their business in countries like
India, Sri Lanka, Japan, etc. These countries are potential customers for DBS
and can help them in growing their business and revenues.
3.2. Power of Suppliers (Less):
The power of suppliers majorly relies on the government grants and other
supports. The power of supplier is negligible in the banking sector and does not
influence the operations of DBS on a larger extent. However, the threat of losing
employees may be high as other banks offering more remuneration may tempt
skilled employees to switch.
3.3. Power of Buyers (High):
The buyers in the banking sector mainly refer to the consumers and other banks
interacting with DBS. The products offered by the banks must be capable of
attracting customers. As there are number of competitors available in the
market, the buyers have many options to choose from. However, the brand
image of DBS will help it in negotiating the power of the consumers (Woelfel,
2009).

3.4. Availability of Substitutes (High):
The competition in the banking industry is very high. Apart from the local and
regional banks, European multinational banks are also affecting the market of
DBS. The products offered and the benefits provided by the competitors should
be analyzed by DBS. Banks like Standard Chartered, Deutsche Bank are
conquering the market of DBS.


8

3.5. Competitive Rivalry (High):
The banking sector is extremely competitive. DBS should launch new and better
products for their customers so that competitors dont think about switching
their bank (Wahlen & Brown, 2010). The competition will tend to increase with
the growth of the market, DBS cannot control the growth but they can formulate
ways to minimize the competition by taking themselves to a higher level.
4.0. Ratio analysis:
Ratio analysis is a tool which primarily uses for the measurement of the
organisations financial performance. It is actually a quantitative analysis
process. In this part author compares the three years financial position of DBS
group holding limited.
4.1. Net profit ratio in 3 years of the DBS group:
PARTICULARS 2009 2010 2011
NET PROFIT
RATIO
30.91 26.323 43.114




Net Profit Ratio
30.91%
26.22%
43.11%
DBS GROUP
2009 2010 2011
9


4.1.1. Analysis:
Net profit ratio of the DBS group holding limited exposes the height of the
profitability. The above table says that in 2009 the organisations profit is
30.91% which percentage is decreased in 2010 (4.587%). In 2009, DBSs profit
percentage has increased at the rate of 25%. DBS is in well position to capture
the opportunities for Asia resurgence. In 2010, it is slightly downward. That is
26.32%. After 2010 the net profit of the organisation is become high (43.14%).
Foreign exchange differences is the another reason to increase the profitability
of the DBS. The organisation balance sheet for three years shows that the DBS
groups mainly profitability increases for growth of the net interest income in
2011. It increases from the previous year at the rate of 11.74%. So it denotes
that the organisation profitability is in good position. In other way the DBS group
holding limiteds expenses in this year is decreased in great extent. So it creates
a positive impact on the clients of the company (Rhaiem et al. 2007).
4.2. Gross profit ratio:
PARTICULARS 2009 2010 2011
GROSS PROFIT
RATIO
38.407 47.155 48.919




38.41%
47.16%
48.92%
Gross Profit Ratio
GROSS PROFIT RATIO OF DBS GROUP
2009 2010 2011
10

4.2.1. Analysis:
Gross profit ratio of the DBS group is 30.91%. The ratio is increased by 6%
compared to the previous year. Gross profit of the organisation has increased
because of the mix shifted of the savings account and current accounts. In 2010,
it increases in high volume 47.16%. The main reason of the raise of the high
gross profitability is the home market extends in Singapore at the rate of 15%.
Hongkong market also increases in that year of 6.8%. Hongkong is the second
largest market of the DBS group holding limited. Core earnings of the company
are increased in 2011 - that is 29.1% ($ 2.65 billion). That is why the DBS
groups gross profit position increases (1.764%). Another reason of the increase
of the gross profit ratio is strong loan growth within the country, higher income
of the cross selling activities and the improvement of the service quality.
4.3. Return on capital employed:
PARTICULARS 2009 2010 2011
RETURN ON
CAPITAL
EMPLOYED
9.8348 11.586 9.5356








2009
2010
2011
0.00%
5.00%
10.00%
15.00%
Return On Capital
employed
2009
2010
2011
11

4.3.1. Analysis:
The analysis shows that the return on capital employed of the organisation in
2009 is 9.83%. That increases in the year 2010 (11.59%). The primary reason
of the growth of the ROCE is a large extent of the business volumes and the
increase of the corporate banking segments. It increases the earnings before
interest and tax at 1.75%. In comparison with the previous year (2009) the
organisations share holders fund is not highly changed. It is increased only
4.83%. Compared to the shareholders fund the long term borrowing has
increased in high volume (72.15%). It results in the minimum rate of growth of
the ROCE in 2010. The analysis part shows that the return on capital employed
of the DBS group is only 9.54% (2011). That means the EBIT rate is very low
compared to the capital employed. So it affects the ROCE of the organisation.
The other reason of the change the return on capital employed is significant rate
of fees and huge interest cost.
Current ratio:
PARTICULARS 2009 2010 2011
CURRENT RATIO 1.072 1.1172 1.11279

4.4.1. Analysis:
Current ratio is indicated as 2:1 proportion. Current ratio of the organisation is
fluctuating in every year. In 2009, it is 1.072 which increases in 2010. That is
1.12:1. In comparison to the previous year it increases in a small rate. The
current asset amount of the DBS group is not very high than the current liabilities
(229988: 214541) in 2009. So the ratio proportion of DBS is below the current
ratio. It increases in 2010. It happens because of the increase of cash balance
and huge growth of the advance and loan amount to the customers (Wahlen And
Brown, 2010). It brings the positive impact on the organisation. Securities
pledged (15.28%) is the another reason of the increase of the current ratio. In
2011, it has seen that DBS groups current ratio is again decreased and it 1.11:1.
The primary reason of decrease this ratio is huge amount of deficit of cash
balance in this year (2011).

12

4.5. Quick ratio:
PARTICULARS 2009 2010 2011
QUICK RATIO .466 .49 .451

4.5.1. Analysis:
Quick ratio is indicated as 1:1 proportion. In 2009, the quick ratio indicates that
the proportion of liquid asset and the liquid liabilities is not reaching the target
proportion. So it understands that the organisations working capital position is
not good. DBS group holding company more invest on the fixed assets. Financial
manager of the organisation is not allocating the proportion of amount on the
fixed and current assets. In 2010, the liquid ratio little proportion increases. It
occurs for the small amount investment of the cash and reduces of the deferred
tax liabilities. It has observed that the DBS group liquid ratio proportion in 2011
decreases. It happens for the high amount of increase of the due to bank amount
increase of the group (Palepu and Healy, 2008). That is $ 27601 million. There are
another reason which influences the liquid liability is due paid to non-banking
customers, negative fair value on financial derivatives and other liabilities. All
those reasons the DBS groups liquidity ratio cannot meet the target of 1:1
proportion (which is ideal for the company).
4.6. Debt collection period:
Particulars 2009 2010 2011
Debtors Turnover Ratio
(Debtor / Credit Sales) * 365
56.84 times 82.52 times 116.83
times

4.6.1. Analysis:
In 2010 the debt collection period is 82.52 times if compare to the previous year
i.e. 25.68 times. The company increases the lending rate to increase the
turnover rate. The debtors turnover ratio is a measure of the number of times
the debtors are rolled in a year hinting at the credit period allowed to the
debtors and hence the working capital management. On the other hand the
company significantly recovers the lending more than the lending rate. So, in
this mean time the company enhances the debt collection period. During 2010
13

2011 the increase rate of debt collection period was more than the previous
year. In this time the company again increases the lending more than the
previous year. The analysis highlights that the company debt management is
going in a smooth way, which is good sign for working capital of the company.
Credit payment Period:
Particulars 2009 2010 2011
Debtors Turnover Ratio
(Debtor / Credit Sales) * 365
71.32 times 23.26 times 31.16
times

4.6.2. Analysis:
The credit collection period of the company decreases significantly. That means
the company also able to manage the credit given period.
5.0. Du Pont analysis:
5.1. Return on equity:
Return on equity is the best indicator to judge the financial performance of a
concern. Breakdown in return on equity into several parts to measure the
performance more practically is known as du pont analysis (Pahl, 2009). This
method used three components to judge the financial performance and these are
Profitability efficiency and risk.
5.1.1. Du Pont break down
Net income/ Equity= (Net income /sales) (Net sales/ total Assets) (total assets /equity).
= profit margin total assets turnover financial leverage.

For comparative analysis of DBS, Indofood a listed company in Singapore stock
exchange is selected.



14

Particulars DBS holding LTD
2007 2008 2009 2010
EBIT/Sales 31% 20.5% 30.15% 41.6%
Sales/Total Assets 23.9% 34% 26.6% 15.6%
EBIT/Total Assets 8% 6.59% 10.25% 10.25%
Interest Expense/Total Assets 0.0% 0.0% 0.0% 0.0%
Net Before Tax/Total Assets 7.9% 7.3% 12.2% 9.4%
Total Assets/Common Equity 191.5% 190.1% 182.2% 179.5%
Net Before Tax/Common Equity 15.2% 13.8% 22.2% 16.9%
Return on Equity 10.1% 9.7% 15.8% 12.1%
33.1% 19.7% 49.7% 46.3%


Particulars Indo food
2007 2008 2009 2010
EBIT/Sales 33.1% 19.7% 49.7% 46.3%
Sales/Total Assets 23.9% 37.0% 24.6% 20.3%
EBIT/Total Assets 7.9% 7.3% 12.2% 9.4%
Interest Expense/Total Assets 0.0% 0.0% 0.0% 0.0%
Net Before Tax/Total Assets 8% 6% 10% 10.35%
Total Assets/Common Equity 201% 145% 158% 203%
Net Before Tax/Common Equity 20.35% 12% 20.21% 19.35%
Return on Equity 15.36% 10.25% 25.3% 22.56%








15

5.2. Evaluation of Du pont analysis:
5.2.1. EBIT/ Sales ratio:
This ratio shows the relationship between sales and operating profits. This ratio
is highly relevant for comparing the operating performance of same as well as
different industries.
Based on the above comparison EBIT of DBS group is slightly lower than
Indofood. Now year wise analysis makes the study more practical.
During the year 2007 performance of Indo food ltd is slightly better as it is able
to earn 33.7% profit compare to DBS that earn 31%. This figure is quite
satisfactory for DBS as in this year financial crisis just started in UK. Operating
profit ratio of DBS in the year 2008 was 20.5% which is 0.8% more than
Indofood limited. Rest of the years the performance of Indofood limited has been
good.
5.2.2. Sales to assets ratio:
Sales to assets ratio reflect the companys efficiency to earn the profits on its
assets investment. High proportion of sales to assets ratio indicates the higher
efficiency of concerns assets. This ratio is quite useful for the mangers to take
decisions on investments (Green et al. 2009). Sales to assets ratio also helps the
managers for proper allocation of funds in working capital and in fixed assets.
Indo food limited also performs better than DBS regarding sales to assets ratio.
This company shows a consistent performance on its sales assets ratio.
5.2.3. EBIT/ total sales:
This ratio signifies the efficiency of the firm to earn profits. This ratio also useful
to offsets the effects of gearing. EBIT to total sales depicts the firms operating
performance before providing for the financial obligations (Kothari &
Zimmerman, 2006).
Over last four year average EBIT/sales ratio of DBS is 8.77 whereas the
EBIT/sales ratio of Indofood shows a figure of 9.20. This increase is mainly due
to good operational performance of Indofood. The stability in EBIT/Total assets
ratio may attractive to the new share holders to invest in DBS.
16

5.2.4. Net before tax to total assets:
This ratio is quite similar to EBIT/ total assets ratio the only distinction is that it
takes financial obligations into account. It reflects the return on companys
assets before any fiscal policy adopted by the GOVT. Both the companies have
no interest obligations. Thus EBIT/Total assets ratio and Net before tax/ total
assets ratio gives the same results. This is just not efficient performance of the
management as they are not able to take the advantages of trading on equity.
5.2.5. Total assets / equity:
Goyal and Welch (2007) argued that this ratio shows the extent to which equity
in the business has been leveraged. This ratio is also known as financial leverage
multiplier. High total assets/ equity denote higher chances of leveraging with
equity, consequently higher financial risks associated with investments. On the
other hands lower ratio shows lower chances of leverage with lower financial
risks.
Total assets / equity ratio of DBS in average is slightly greater than Indofood.
This ratio is not very useful for measuring the performance. Risk averse
investors are always prefer lower Total assets / equity ratio on the other hand
the investors who are ready to take risk for higher returns always prefer high
Total assets / equity ratio. This ratio is not relevant here as no company is using
fixed interest bearing securities (French & Fama, 2007).
5.2.6. Return on equity:
Return on equity is a relationship between earning available to equity share
holders and Equity investments. This ratio is highly relevant as it indicates return
on the equity investment. Only in this case DBS performs better than Indo food
ltds. Their return on equity is so higher than Indo food ltd. This ratio is a good
tool for measuring the operating performance (Keown et al. 2008).
.
17


Figure 5.2.6: Return on equity
6.0. Valuation:
6.1. Assumption:
Beta coefficient denotes the changes in the securities return due to one percent
changes in the market return (Adsera and Violas, 2008). That means it
describes systematic risk of a security comparison to market portfolio. It is a
quantitative measurement of securities sensitivity i.e. how much a particular
security is deviated by changes in the market return.
A number of methods are available to compute the beta coefficient. To compute
the beta coefficient of DBS group the researcher decided to use regression
method on the single index model (Baker and Wurgler, 2008). Under that
method beta is represented through three ways.
>1 Indicates that security return varies more than market return (Aggressive
security).
=1 Indicates return of particular security moves similarly with market return.
<1 suggest that return of security varies less than market return (defensive
security).
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2007 2008 2009 2010
Series 1
Series 2
18

=0 suggest that security have no relation does not move with the movements
of market returns.
According to Beneda (2007), Regression method allows the statistical reliability
of estimated results the reason of which it is more useful in comparison of
equation approach. Security characteristic line is the straight line resulting from
regression equation and the slope of security characteristic line is beta of a
security.
For the measurement of risk of market portfolio Straight Times Index method is
being used (Claus and Thomas, 2008). STI is constructed after taken all the
companies into account that have the frequent trading in Singapore stock
exchange. 1 years treasury bill of Singapore Government is taken as risk free
rate for computation of required rate of return on equity. The regression
equation is computed based on the 12 months returns from Dec 2010 to Aug
2011 that results a raw beta of 1.77.
According to Blumes assumption beta of individual security not stable in long
run, but it regress towards the mean. So the adjustments should be made to
compute actual beta.
Beta () = (2/3) raw beta + (1/3) market beta
Adjusted beta by using the following formula is .98 [Follow the Appendix Part for
Beta Calculation].
6.2. CAPM model:
CAPM model is a model of computing the required rate of return on equity. This
model is effective than other models as it consider the market risk.
CAPM formula: Re=Rf+ (Rm-Rf).
Where
Re= required rate of return
Rf= risk free rate.
Rm= Expected return on market
19

= Beta coefficient.
6.3. Risk-free rate:
Risk free rate is the rate that the GOVT is provided on Treasury bill. Investors
are investing in some security only when that concern provides more than risk
free rate. Investing other than GOVT securities bear some risks thats why
investors always wants more return than risk free rate provided by the govt. As
risk free rate 1 year GOVT securities rate is used which is 2.50%.
Market Risk premium:
Market premium denotes the difference between expected return on market
port folio and risk free rate (Welch, 2008). It is equal to the slope of security
market line. Market risk premium is the additional return required by the
investors for bearing more risks.
6.4. Determination of expected market rate of return
Year end Closing index of STI STI growth (%)
2006 2772.32
2007 3221.25 16.19%
2008 1525.25 -52.65%
2009 2595.01 70.14%
2010 2694.25 3.82%

Market rate of return 9.38%

Re=Rf+ (Rm-Rf) = .025+.98(.0938-.025)
=9.24%.
So the share holders of DBS can expect a return of 9.24%.



20

6.5. Dividend discount Model:
Dividend discount model is used to compute share prices. This model is also
known as dividend valuation model. Woelfel (2009) described that Traditional
approaches considers more relative valuation technique to compute the share
prices but the modern approach considers cash flow technique rather than using
relative technique as cash flow techniques takes into account all the future cash
flows. Under this model cost of equity would be taken as a discounting rate to
convert all the future cash flows at present value. Dividend discount method is
regarded as a direct method because dividends are that cash flows which are
directly received by the investors.
6.5.1. Limitations of using dividend discount model:
However, there are disadvantages that involves in dividend discount models are
as follows.
This model is difficult to apply in the concern that does not pay dividends
as they have a high growth investment or they are experiencing a period of
high growth (Yao, 2007).
Ascertainment of discount rates that could be used in dividend discount
model is a difficult job.
This particular model of valuation does not taken firms future growth.
This model is so useful for the concern that maintains stable dividend policy and
reaches in the mature phrase of business.
This model assumes that the value of a concern is the present value of all the
future dividend payments (Foerster & Sapp, 2008).
.
6.6.2. Formula of dividend discount model:


21


6.6.3. Dividend payment policy of DBS Group LTD: DBS is still in its
growing stage. They are not maintaining any stable dividend policy. In the
year 2010 directors are recommends a dividend of at least 25% of the
earnings available to the share holders.
6.6.4. Forecasting of future dividends: Revenue of DBS has been
increased by 30% in the year 2011.It seems like dividend payout ratio also
grow constantly by 25%. The assumption has been taken that dividend will
grow at a rate of 5 % as the long term growth of the company cannot
exceeds the average growth of the economy. Average growth rate has been
calculated by taken five years average from 2006 to 2010(Fama & French,
2007).
.
6.6.5. Approach of using growth rate = Retention ratio*ROE
= .75*.18 = 13.5%
This computed growth rate is too high.
Calculation of DDM model based on the assumption of 5% growth rate

Year 2009
(A)
2010
(A)
2011
(F)
2012
(F)
2013
(F)
Dividends
(SGD Cents)
N/A .52 .55 .57 .60

Value in 2013 after using DDM model:

Value= D
12
(1+g)
(K-g)
=.57(1+0.05)/ (.0924-.05) = 14.12
So the share price of DBS in the year 2013 is 14.12.
Forecasted share price



22

Year 2011 (F) 2012 (F) 2013 (F)
Share Price

12.87 13.62
14.12



Based on the growth rate 5% in 2011, a 1% is applied to growth rate as
well as required rate of return.

Required Rate of Return (k) Growth Rate (g)
Sensitivity Factor -1% K +1% -1% G +1%
Value of factor 8.24% 9.24% 10.24% 4% 5% 6%
Share Price 16.85 12.87 10.42 13.32 12.87
17.01
Price change (%) 30.92% 0 -19.04% 3.50% 0
32.16
%

This analysis will shows the percentage changes in the share prices due to
Percentage changes in the required rate of return as well as in growth rate. A
1% falls in the required rate of return results rising of share price by 30.92%,
where a raise of 1% in the required rate of return decreases the share prices by
19.04%.
On the other hand, a 1% fall in the growth rate results a rise of 3.50% in share
prices, whereas 1% raise in the growth rate results 32.16% increases of share
prices.
The theoretical share price of DBS in 2011 is 12.87 on the other hand the share
price listed in the Singapore stock exchange is 9.28. Hence the share price of
DBS is undervalued and it is advisable to the share holders to purchase the
shares of DBS.
23

6.7. Free cash flow to equity model: Robinson (2008) explained that this
valuation model is used to determine the value of equity shares based on free
cash flows. Here free cash flow means the funds available to equity share
holders after paying the obligations on debt and also the payments necessary to
maintain the firms assets base.
To derive the suitable price of the share, earnings are discounted at present
value by taking share holders required rate of return in to account.

Formula determines the share prices under free cash flow models.



CF = Net Profit after Tax [(Capital Expenditure Depreciation) x (1 debt
ratio) [(Change in working capital) x (1 debt ratio)] [Sloan, 2008].
Assumptions under free cash flow formula:
Number of ordinary shares remains unchanged at 454015462 shares.
Borrowings or debt ratio = Net debt / (Net debt + Equity).
Year End as at 31
December 2010
2009 2010 2011F 2012F 2013F
Net Profit after Tax (NPAT) 75845 87545 95012 100254 115652
Capital Expenditure -4587 25412 47851 54854 58475
Depreciation 35468 45125 50145 58451 62145
24



Number of shares outstanding tills 2013 (assumed) 454015462. As per
computation of FCFE model theoretical share price of DBS seems positive in
2009 only. During last four years share price of DBS shows negative results.
According to this method the share price of DBS is largely over valued and it is
advice able to the share holders to sale the shares.
6.8. Price earnings ratio model: Palepu and Healy (2008) stated that many
investors are using price earnings ratio method to compute investors demands
for shares. It indicates the ratio of companys current share price over per share
(Capital Expenditure
Depreciation)
-40055 -19713 -2564 -3597 -3670
Total Equity 254125 354875 456124 547896 641250




Net Debt 20145 150254 145015 152450 178455
Debt Ratio 0.0793 .4234 .3179 .2782 .2783




A. (Capital Expenditure -
Depreciation) * (1 - Debt
Ratio)
36879 11366.52 1749 2596 1021




Change in Working Capital 30254 272547 369854 54654 99874
B. (Change in Working
Capital) *(1 - Debt Ratio)
27855 157151 252277 39449 72080




NPAT - A - B (S$) 9024 -145784 -37700 -36853 -71059
25

earnings. In common stock valuation it indicates how much an investor willing to
pay for expected earnings.


This model also can be derived from the DDM formula:


Assumptions under this model:
Growth rate is constant from 2011 to 2013.
Number of issue of shares are assumed to be same from 2011-2013.
Required rate of return for DBS also constant from 2011-2013.

Computation of P/E ratio of DBS group from 2011-2013
Actual Forecast
2009 2010 2011 2012 2013
Earnings Per
Share
3.31 3.97 4.51 4.59 4.98
Dividend Per .52 .546 .57 .60
26







One can determine the intrinsic value of the shares from P/E ratio. Intrinsic
value is the multiple of P/E ratio with Earnings per share.
Intrinsic value= (P/E ratio *EPS) [Rhaiem el al. 2007].

Intrinsic value of DBS
2011 (F) 2012 (F) 2013 (F)
EPS 4.51 4.59 4.98
P/E Ratio 2.05 2.27 2.41
Value per
Share
9.2455 10.4193 12

Sensitivity analysis is done here to understand the volatility of share prices of
DBS. Analysis is done here on the basis of required return of equity and growth
rate also it is assumed that required rate of return and growth rate remain
constant from 2011-2013.


Share
Dividend
Growth Rate
5% 5% 5%
Required
Rate of
Return
9.24% 9.24% 9.24%
Estimated
P/E Ratio
2.05 2.27 2.41
27

Required Rate of Return (k) Growth Rate (g)
Sensitivity
Factor
-1% k +1% -1% g +1%
Value of factor 8.24% 9.24% 10.24% 4% 5% 6%
Share Price 14.21 13.25 8.26 11.20 13.25 14.25
Price change
(%)
7.24% 0% -37.66% -15.47% 0 7.55%

From the above analysis it is quite clear that the share price of DBS is so much
sensitive to change in both required rate of return as well as growth rate.
Intrinsic value of shares changes increased by 7.24% when the required rate of
return falls 1%, whereas share price will falls by 37.66% due to 1% increase of
required rate of return.
On the other hand share price of DBS will be increases by 7.55% due to 1%
increase of growth rate, whereas the share price of DBD reduced by 15.47% due
to one percent reduction in the growth rate.
Based on the price earnings ratio it is advisable to the investors to purchase
shares of DBS as it is undervalued by (13.25-9.2455) =4.0045.
6.9. Price book value ratio method:
Reilly and Schweihs (2009) stated that this method is known as price equity
method. Price book value ratio method is useful to compare companies that
follow the same accounting standards and same in nature. This ratio compares
share holders equity with current market price of the shares. Share holders
equity includes share capital, reserves and surplus and minority interest. This
ratio is specific and gives some vast variable results across different industries.
As an example capital intensive firms have lower price book value ratio
compared to other firms. In spite of the limitation this ratio is quite useful where
all the assets and the liabilities are in line and reported in same currency (Sloan,
2008). Higher price book value ratio denotes overvaluation of firm on the other
28

hand lower price book value ratio indicates that the firms assets may be
undervalued.


6.9.1. Formula:
Price/book value ratio = price per share
Book value of shares

= (ROE*payout ratio)
(Required rate of return-growth)
[Ross & Jordan, 2008]

Book value per share = Net assets
Shares issued
[Sorensen & Willamson, 2007].

Price per share = price book value ratio*Book value.

Assumption:
Number of shares remains unchanged.
Variable rates of return used to compute the volatility.
Variable growth rate also taken into account to compute the volatility.
To understand the ratio wisely the stock is classified in two category value
stock and Growth stock. Low price book value ratio indicates the undervalued
price of stocks that investors are always preferred to buy. When market
29

realises the real value, then the price of stocks goes up and generate a
reasonable higher profit.
Price book value ratio of DBS
Book value per share of DBS at t+1 period:
= Total equity *(1+ estimated growth rate)/ number of outstanding shares
Estimated growth rate=5%
Forecasted = 71053420*(1+.05)
454015462
= .1643
Price book value ratio = Current share price/book value per share.
=.20/.1643
= 1.22
(Note: book value calculation has been done in the attached appendix 2).
6.9.2. Sensitivity analysis:
Sensitivity analysis is done here Based on the assumed growth rate and
required rate of return.
Sensitivity Model for Price/Book Value Ratio Model 2010
Required Rate of Return (k) Growth (g)
Sensitivity
Factor
1%
decrease
k 1%
increase
1%
decrease
g 1 %
increase
Value of Factor 8.24% 9.24% 10.24% 4% 5% 6%
Price of Share .87 .91 .58 .93 .91 .79
% Change in
Price
4.39% 0 -36.26% 2.20% 0 -13.20%

The above analysis shows the fluctuations in the share prices due changes in
required rate of return and also with growth rate.
30

Share price of DBS has been increased by 4.39% due to 1% decrease in the
required rate return whereas share price of DBS is decreased by 15.94% due
to 1% increase in the required rate of return.
On the other hand share price of DBS increased by 2.20% due to 1%
reduction in growth rate and reduced by 13.20% due to 1% increases of
growth rate. Hence the share price of DBS is more volatile with required rate
of return rather than growth rate.
6.10. Net tangible asset backing method:
Bond and Meghir (2008) evaluated that this method reflects the stability of
the business and its efficiency to satisfy all the stake holders at the time of
liquidation. This method produce a view of risk associated with some
particular investment. NTAB shows the actual amount of tangible assets
represented by the equity shares of the company.
Formula for calculating Net tangible assets
Net Tangible assets per share = Total assets total liabilities
Number of shares.

Assumption:
It is assumed that the net assets of DSB increases 5% per year.
Total number of outstanding shares remains constant till 2013.
As there are no intangible assets in 2009 and 2010 it is assumed that
DBS has no intangible assets till 2013.


In million 2009 2010 2011 2012 2013
Net
tangible
assets.
254125 354585 390044 429048 471953
Intangible
assets.
- - - - -
31

Outstandi
ng
shares(no
)
45440154
62
45440154
62
45440154
62
45440154
62
45440154
62
Net
tangible
assets per
share.
55.93 78.03 85.83 94.42 103.86



This model is useful to calculate share prices of historical value as for future
periods. The above table shows the value of investments in terms of net
Tangible value. According to this method the share price of DBS is
undervalued. In Singapore stock exchange the share price of DBS shows a
figure of 9.28 but under this method the share price of DBS shows 55.93
which is quite huge than its market value prevail in the Singapore stock
exchange. So under this method the investors are suggested to purchase the
shares of DBs as it undervalued (Brigham & Ehrhardt, 2010).
7.0. Valuation Discussions:
7.1. Dividend discount model:
Calculation using dividend discount model shows that the actual share price
of DBS is more than the theoretical value of shares. In this situation it is
advisable to the existing share holders to sell the shares of DBS but a
financial analyst cannot say that less theoretical value always denotes the
overvalue of a firm as some times more demands for shares also increases its
market value (Beneda, 2007).
.
7.2. FCFE:
According to FCFE model the theoretical value of the shares are less than its
market value. Under that model also it is advisable to sell the shares to
32

existing share holders as the market value exceeds the theoretical price
(Barry & Starks, 2009). The difference in the theoretical share price and in
market value of shares may arise due to 1) Economy slowly recovering the
financial crisis.2) depreciation is expected to grow as with the increase in the
property of DBS.3) debtors turnover ratio reduces and creditors turnover
ratio increases (Ghezzi & Piccardi, 2007).
FEFE model derive theoretical value of shares but it is not totally dependent
as it does not take the following variables in to account, depreciation
expenses, change in working capital and change in capital expenditure
(Grullon & Michaely, 2008).
7.3. Price earnings ratio:
Computation of theoretical value of shares is done under P/E model also. This
model shows that the future value of equity shares as per calculation expects
9.2455, 10.4193 and 12 in next three years. Computed value under this
model is lower than the actual market price of the shares of DBS. So, it is
advisable to the existing share holders to sell their existing shares.
There may be some reason behind the excess market price over the
theoretical price,
Sales are expected to grow as the economy slowly recovering the financial
crisis.
DBS group is in its potential growth stage so the investors are ready
purchase their shares more fluently.
There are so many variables which are taken as constant regarding
valuation changes in that variable may give some different results.

It should be remembered that the P/E ratio is derived from DDM model. The
assumptions under both models will remain same. However there are some
assumptions included in the Price earnings ratio. P/E ratio is largely
dependent on earning per share. Change in the growth rate makes a big
impact on the P/E ratio. Fluctuation in the growth rate and more dependency
on earnings back strapping this model to achieve the highest level. This
model does not consider the other variables that may give huge impacts on
33

the share prices. Hence this model is not considered as best model regarding
share or business valuation (Pastor& Stambaugh, 2007).
7.4. Price book value ratio:
Theoretical share price of DBS is done also through price book value ratio
model. Valuation under this model also suggests the investors to sell the
shares as market price exceeds the theoretical price. Computation under this
model is also not as reliable as it considers only the equity worth for an
investment. This method also does not consider the other relevant variables
(Mcmillian & Pinto, 2011).
7.5. Net tangible asset backing method:
Baker and Wurgler (2008) opined that this method is totally based on the net
asset that the company had. NTAB does not include any forecast of
companies also the economys performance. This model is totally vogue and
a few numbers of investors are reliable on this report. To make the research
more practical this method is totally avoided for valuation purpose.

Models Recommendations
Dividend discount model Purchase as the shares are
undervalued.
FCFE Purchase as the shares are
undervalued.
Price earnings ratio purchase as the shares are
undervalued
Price book value ratio purchase as the shares are
undervalued

7.8. Conclusion: Company valuation is an art. There are so many relevant
methods for company valuation. Four practiced methods are used to evaluate
DBS. This method could give us a brief view about companys recent position
and future prospects but a small change in the variables could reverse the
whole situation. Main limitation involved under these methods is dependency
34

totally on annual report and doing all the analysis by taking the secondary
data. Future valuation is done through the forecasted figures but this analysis
does not consider the variable that could influenced the forecasted figure the
reason of which so, many financial analysts makes the comment that
company valuation is an art not a precise science.
Share price of DBS is undervalued under all mention methods. Market value
of shares may exceed the theoretical price in lot of situations like more
demands of shares, Growth stage of company, Economical conditions. So it is
not essential that greater market price than theoretical value always indicate
over valuation. DBS group is still in its growth stages also the economy stars
to recovering from financial crisis in global basis. So in current situation it is
advisable to the investors to purchase the shares of DBS to increase their
worth.














35


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39



Appendix:
Computation of ratio analysis:
PARTICULARS 2009 2010 2011
NET PROFIT 2041 1860 3290
SALES 6603 7066 7631
GROSS PROFIT 2536 3332 3733
SHAREHOLDERS' FUND 25373 26599 28794
LONG TERM BORROWINGS 413 2160 10354
CAPITAL EMPLOYED 25786 28759 39148
CURRENT ASSETS 229988 270231 323869
CURRENT LIABILITIES 214541 241874 287137
ADVANCES 129973 151698 194275
QUICK ASSETS 100015 118533 129594
QUICK LIABILITIES 214541 241874 287137
CREDIT SALES 22203 20306 25571
DEBTORS 3458 4591 8185
CREDIT PURCHASE 2564 3985 7039
CREDITORS 501 254 601


RATIO 2009 2010 2011

Gross Profit Margin
(Gross Profit Sales x 100) 38.407 47.155 48.919
Net Profit Margin
(Residual profit Sales x 100) 30.91 26.323 43.114
Return on Capital Employed
(Profit Before Interest & Tax Capital
Employed )x 100) 9.8348 11.586 9.5356
Current Ratio
40

(Current Assets Current Liabilities) 1.072 1.117239 1.127925
Liquid Ratio
(Quick Assets Current Liabilities) 0.466181 0.490061 0.451332
Debt Collection Period
(Debtors Sales x 360) 56.84682 82.52315 116.8325
Credit Taken
(Creditors Cost of Goods Sold x 360) 71.3202 23.26474 31.16423

Annual GDP of Economy
Year Annual GDP (%)
2006 5.2
2007 6.2
2008 4.6
2009 5.63
2010 6
Average of five year 5.526

Computation of DDM

Forecasted dividends (DBS)

Dividend for 2011 = Dividend 2010 (1+g) = .52*(1+.05) = .546
Dividend for 2012 = Dividend 2011 (1+g) = .546*(1+.05) = .5733
Dividend for 2013 = Dividend 2012 (1+g) =.5733*(1+.05) =.6019

= .60(1+.05)
(.0924-.05)
= 14.86
Value 2013 =
D
13
(1 + g)
(k-g)
41



Calculation:
Book value for 2011 = Net assets
Share issued

= 79480000
454015462
= .1751
Book value of 2012 = 85450000
454015462

= .1882.

Book value of 2013 = 92540000
454015462
= .2038








42





Beta Calculation:
Date
Adjusted
Close of
DBS
Group
Rate of
Return
of DBS
Group
Adjusted
Close of
STI
Rate of
Return
of STI
12/1/2011 11.08 -0.07125 2646.35 -0.02076
11/1/2011 11.93 0.003364 2702.46 -0.05368
10/3/2011 11.89 0.043898 2855.77 0.067514
9/1/2011 11.39 -0.10667 2675.16 -0.07282
8/1/2011 12.75 -0.12791 2885.26 -0.09532
7/1/2011 14.62 0.057122 3189.26 0.022055
6/1/2011 13.83 -0.01214 3120.44 -0.0125
5/3/2011 14 0.014493 3159.93 -0.00403
4/1/2011 13.8 0.022222 3172.73 0.021534
3/1/2011 13.5 0.02818 3105.85 0.031669
2/1/2011 13.13 -0.05607 3010.51 -0.05322
1/3/2011 13.91 0.04902 3179.72 -0.00324
12/1/2010 13.26 0.023148 3190.04 0.014418
11/1/2010 12.96 0.006993 3144.7 0.000662
10/1/2010 12.87 -0.01379 3142.62 0.014524
9/1/2010 13.05 0.019531 3097.63 0.049927
8/2/2010 12.8 -0.03469 2950.33 -0.01251
7/1/2010 13.26 0.061649 2987.7 0.053673
6/1/2010 12.49 -0.02802 2835.51 0.030121
5/3/2010 12.85 -0.07019 2752.6 -0.07463
4/1/2010 13.82 0.072149 2974.61 0.030182
3/1/2010 12.89 0.024642 2887.46 0.049657
2/1/2010 12.58 -0.01949 2750.86 0.002007
1/4/2010 12.83 #DIV/0! 2745.35 #DIV/0!

Beta of DBS Group 0.983393