12 things to know about Bursa Malaysia before you invest (updated 2019)

Listed in 2005, Bursa Malaysia is the official bourse of Malaysia and one of the leading exchanges in Southeast Asia. It offers a comprehensive range of services which include the listing, trading, clearing, settlement, and depository of equity and derivative products. As at 13 May 2019, Bursa Malaysia is valued at RM5.0 billion in market capitalization.

In this article, I’ll bring an update on its recent financial results and valuation figures. Here are 12 things to know about Bursa Malaysia:

1. Securities revenue has grown by a compound annual growth rate (CAGR) of 6.75% over the last 10 years from RM227.4 million in 2009 to RM409.5 million in 2018. This is due to consistent growth in trading, listing, issuing, and depository services of securities over the period. Presently, this segment remains the largest revenue contributor accounting for 78.2% of total revenue.

Source: Bursa Malaysia annual reports

2. Derivatives revenue declined 11% in the last two years from RM102.9 million in 2016 to RM90.8 million in 2018. Prior to this fall in revenue, the derivatives division had reported a consistent increase in sales from RM47.9 million in 2009 to RM102.9 million in 2016. The recent back-to-back fall in revenues is caused by several factors such as declining crude palm oil (CPO) prices, uncertainties arising from the China-U.S. trade war, strengthening of the ringgit against currencies of importing nations, and import duties hikes for edible oil in India. Presently, this segment is the second largest revenue contributor accounting for 17.3% of total revenues in 2018.

Source: Bursa Malaysia annual reports

3. Overall, group revenue has grown by a CAGR of 6.47% over the last 10 years, from RM297.6 million in 2009 to RM523.3 million in 2018. Its growth is due to a consistent increase in revenues from the securities division which offset the drop in revenue from the derivatives division in 2017 and 2018.

4. Shareholders’ earnings have grown by a CAGR of 9.18% over the last 10 years from RM101.6 million in 2009 to RM224.0 million in 2018. Its growth in profits exceeded its growth in revenue mainly because Bursa Malaysia has steadily reduced its cost-to-income ratio from 51.7% in 2009 to 46.1% in 2018. For the past 10 years, Bursa Malaysia averaged 20.7% in return on equity.

Source: Bursa Malaysia annual reports

5. From 2009 to 2018, Bursa Malaysia generated RM1.9 billion in cash flows from operations, RM185.8 million in interest, and RM33.2 million in dividend income. Out of which, it has spent RM187.2 million in capital expenditures and RM1.9 billion in dividends to its existing shareholders. Bursa Malaysia is a cash-generative business and does not need to continually raise capital to expand its business or to reward its shareholders with dividends.

Source: Bursa Malaysia annual reports

6. As at 31 December 2018, Bursa Malaysia reported RM29.7 million in non-current liabilities and RM875.1 million in shareholders’ equity, which equates to a gearing ratio of just 3.4%. It has RM2.4 billion in total assets and RM1.7 billion in cash. Out of this, Bursa Malaysia deposited RM1.1 billion of its cash with financial institutions to earn interest income.

7. Bursa Malaysia continues to develop new products in order to enhance its attractiveness to investors, traders, and companies. For its securities division, Bursa Malaysia met up with 140 potential listing candidates, participated in 20 events to raise awareness of the benefits for companies to be listed on Bursa Malaysia, and successfully recorded 22 IPOs in 2018. For its derivatives division, Bursa Malaysia introduced a series of new products such as the FM70 index futures and revised a number of contract specifications for FCPO and FPOL to give traders greater flexibility when executing their trades.

8. Bursa Malaysia identifies investor education as a catalyst to develop a sustainable investor base. As such, it has conducted regular workshops, seminars, and webinars to educate investors on stock investing subjects. Similar educational initiatives are also carried out in its derivatives division to introduce futures trading and its strategies to the public.

9. Bursa Malaysia is working towards expanding its presence in ASEAN via several initiatives. This includes organising the Invest ASEAN roadshow, facilitating freer flow of information within ASEAN, and fully supporting the ASEAN Capital Market Forum’s initiatives in the development of the ASEAN Capital Market. Meanwhile, the derivatives division participated in a handful of main international conferences such as Globoil Mumbai, Indonesia Palm Oil Conference 2018, and the Futures Industry Association Asia. It has also collaborated with Dalian Commodities Exchange to host the annual China International Oils & Oilseeds Conference 2018 in Guangzhou, China.

10. P/E ratio: As at 13 May 2019, Bursa Malaysia is trading at RM6.22 per share. In 2018, it recorded RM0.278 in earnings per share. Therefore, its current P/E ratio is 22.4, below its 10-year average of 25.1.

11. P/B ratio: As at 31 December 2018, Bursa Malaysia has net assets of RM1.08 per share. Thus, its current P/B ratio is 5.8, above its 10-Year average of 5.3.

12. Dividend yield: In 2018, Bursa Malaysia paid RM0.256 in ordinary dividend per share (DPS) and RM0.08 in special DPS. Based on ordinary dividends alone, Bursa Malaysia’s current dividend yield is 4.1%, which is above its 10-year average of 3.6%. Including special dividends, the yield goes up to 5.4%.

The fifth perspective

Overall, Bursa Malaysia has delivered steady growth in revenue and profit over the last 10 years. As such, its share price has steadily risen especially in the last 3-4 years.

However, a recent drop in share price has seen Bursa’s valuation come down to reasonably attractive levels. Based on dividends, Bursa’s current yield of 4.1% is near the top end of its yield range over the last 10 years. If you’re a Malaysian dividend investor, then this might be a worthwhile opportunity to have at Bursa Malaysia if you have an interest in the company.

Ian Tai

Financial content machine. Dividend investor. Produced 450+ financial articles featured on KCLau.com in Malaysia and The Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular host and presenter of a weekly financial webinar with KCLau.com. Co-founded DividendVault.com, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

1 Comment

  1. HI Ian, what’s your take on Bursa Malaysia with the announcement of

    1) Cukai Makmur – companies with RM 100 Mil net profit get taxed at 33%
    2) Implementation of trading charges from 0.1% to 0.15% ?

    *Do you think based on the short term (next 18 months) it is not so attractive but will rebound back after 2023? Since it will weigh down heavily on the trading volume?
    *Do you have any idea how Bursa’s earning will be impacted from the Securities Division on item 2?
    I am curious about the details of how the security houses split the fees to Bursa. (what’s the percentage split)

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