S.E.A. Banks Efficiency vs Valuation

Author: Admin Publish Date: 30-08-2019
Updated On:  18-11-2019

The efficiency of a bank is determined by its Return on Equity (ROE) while Price to Book Multiple (P/B Ratio) is used to determine its valuation. Here is a comparison of banks in Malaysia, Singapore and Thailand. The average valuation for banks in these 3 countries lies between P/B 0.94X ~ 1.25X and most banks in these countries has an ROE of 9.5%~12.1%, unlike banks in Indonesia where loss-making is still common. 
In this graph, we can see that the more efficient a company is (Higher ROE), the market is willing to give a higher valuation to this company. However, when we draw a regression line between these 2 factors, it seems like the market has been overpaying for Public Bank and is underpaying for BIMB.

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