Faceoff Battle: Bursa Malaysia Vs Singapore Exchange
March 13, 2019
On 28th Feb 2019, we held our first Facebook Live Stock Battle between the two largest exchanges in Southeast Asia, Bursa Malaysia vs Singapore Exchange.
It is a lively debate between our two co-founders, Willie Keng, CFA and Stanley Lim, CFA.
Here is the discussion and partial transcript for your viewing.
FULL Transcripts will be available for our Private VIA Club Members, to find out more about VIA Club, click here.
let’s get started. Just sharing some simple stats of these two companies; for
Bursa Malaysia, it is of course listed on Bursa itself, and it has a market cap
of 5.77 Billion Ringgit, as of the closing today when I checked. So, if we
translate that to US Dollars, it’s roughly 1.42 Billion, it’s trading around 25.5
times its P/E, and giving you a 3.5% Dividend Yield, if you include the special
dividend as well, it’s Dividend Yield might be pushed up to about 4.7%. So, not
bad at all, very interesting company, what about SGX?
Willie: Alright! Let’s see, SGX;
market capitalization is 8.4 Billion Singh Dollar. So, if we convert it to US Dollar,
it’s 6.23 Billion, Price to Earning is roughly the same as Bursa Malaysia;
which is about 22.6 times, Dividend Yield as well is 3.8%, which is roughly the
same as Bursa Malaysia as well, but the thing is Stan; Bursa Malaysia market
cap is so small, it’s only 1.42 Billion versus SGX’s 6.23 Billion, I mean.
Stanley: Sometimes you know, when
you’re already an elephant, it’s hard to grow you know, but some interesting
fact about these two companies; these two companies actually have their history
started out as the same company, they both started out as the stock exchange of
Malaysia in 1964, but of course when Singapore and Malaysia split, slowly these
two companies came to separation, and after a few merger, and you know spin-off
here and there, here we are, with Bursa Malaysia and SGX.
Willie: It’s a battle of David
versus Goliath, Big brother versus Small brother.
Stanley: Before we look into what
these two companies are doing, and how we think that they will perform in the
future, let’s look at their past performance. Right! So, for Bursa; we look at
the past ten years, roughly from our calculation, it has you know returned
about 5 to 6% before dividend, if you add that to your dividend, you’re looking
at maybe 8 to 10% return over the past ten years. So, not of quite a good
return for stocks, what about SGX?
Willie: Let’s see, SGX; if we
compare it with – over the same time line, it’s gonna give us a total return of
about 7% just based on capital appreciation, if we add dividends, it’s roughly
the same as what Bursa Malaysia have in returned as well there’s roughly about 10
to 11% as well.
Stanley: Wow! slightly better, but
you know past performance is no guarantee of future performance.
Willie: Of course. [Laughs]
Stanley: Alright! Some of the basic
operation stats of Bursa Malaysia. Let me just go through them first; Bursa
Malaysia, their revenue for the past ten years has actually been growing about 5.6%
over the past ten years. So, it’s a growing company, we might always see you
know large company, large blue cap company as a very slow growing company, but
actually they’re still growing at a very decent pace, 5.6 and their net income
is actually growing even faster at 8% for the past ten years. So!
Willie: Oh! Wow!!
Stanley: Yeah, beat that SGX. What
Willie: So, SGX has also been
growing, revenues year on year, their operating profit, and their net profit has
been growing, but it’s not as strong as Bursa Malaysia, I’m surprised. The
revenue growth is only about 3.6 on compounded annual growth basis, so it’s
Stanley: Slightly smaller, I think
less than half there.
Willie: Well, but I like to
quote from you again Stanley, past performance is definitely not equal to your
future performance. [Laughs]
Stanley: Okay, let me eat my words,
but as you can see both companies are actually growing, and both companies have
very strong feed cashflow, and very strong balance sheet. So, all in all they
are very similar. Okay, but what’s the different in Business Model? So, if you
look at Bursa Malaysia Business Model right now; I have this slide for you guys,
the main part of their revenue, more than 50% is still coming from their Securities
Trading. So, how does exchange make money? So, every time we buy and sell a stock,
they will earn some part of that fee, that we pay to our brokers, and also for
listing fees, company have to pay them, and for market data when company wants –
or fans want to use their database, and of course once you’re a listed company,
similar to our CFA society; once you are a member, every year, you must pay a
membership fee to them. Very, very strong subscription model. Yeah! But, of
course Bursa Malaysia right now, still – bulk of their business, all you need
to know is mainly still coming from securities trading. So, every time you buy
and sell a stock derivative trading, so every time you buy and sell a
derivative, and of course from their listing fees. so those are the three big
revenue generators. What about SGX Willie?
Willie: Okay! Let’s talk about SGX;
SGX is slightly more concentrated in this case, but similar to Bursa Malaysia,
most of their revenues are still coming from their trading volume, which is
split between the equities and the fixed income business. So, like what Stanley
has mentioned, they also earn from the transaction volume which they made. So,
the more investors trade through the SGX, the more money they make, and of
course they also have the derivatives business as well, which forms the next
largest segment of the revenue pie.
Stanley: Wow! It’s actually quite
Willie: Yeah! it is. So, the
thing about, maybe just to mention a bit. so Singapore Exchange and Bursa
Malaysia; the key thing they have in terms of the economic mode is really on
the regulatory advantage, because you can’t create another exchange from
scratch, even though you have the money correct?
Willie: You definitely have to –
Stanley: Let’s debate that later.
Stanley: Generally, I agree. Yes.
Okay! So, these are the two Business Model, and of course everyone, I can see
more and more people joining us now, the Jensen, Gyen, Mike, Mr. Tan, hey
Michael, thank you for joining us. So, if you have any question about these two
companies. you can just give share your questions with us, or your comments
with us; down at a comment tab, and when we go to the Q&A section we’ll
definitely try to answer every question that you have. So, shoot away right;
especially aiming at Willie and SGX.
Willie: About that, I think I
have very strong SGX supporters here, any SGX supporters?
Stanley: Yeah! why don’t you tell us,
are you supporting Bursa Malaysia or SGX on this battle. Right! Going forward,
for the security business of Bursa Malaysia, given that this is their largest
business, we want to see that it is at least a growing business. So, we can see
that it is actually still a very healthily growing business, the average daily
value of trade actually doubled for the past ten years. So, in 2008, the
average daily value traded is only 1.1 billion Ringgit, but right now it’s
close to 2.4 billion every day being traded. So, that’s a value growing at
about 7.3% over the past decade. So, that’s actually quite a healthy growth
that we want to see, I’m not sure if we will see that in SGX, what do you think
Willie: Let’s have a look at SGX
over the next slide, security’s daily average trading volume, all right maybe
cannot be compared to Bursa Malaysia, maybe it is slightly lower, less than a
billion dollars every day, we have got to admit that their Security’s business
over the past years hasn’t been growing very strongly, but they have already
made up for that in the derivatives business ,which we shall see later on.
So, you’re trying to avoid talking about this segment. But if you look at the
year on year volume change, you can see that they are dropping quite
significantly across the bottom with about 30-40%. So, that’s really a source
of concern I think, don’t you agree?
Stanley: How is SGX trying to
Willie: I think there is a lot
of growth plans ahead, which I will share later, and I’ll use that as a strong
point against Bursa Malaysia, I think I SGX definitely have an edge against Bursa
Malaysia which I will share later.
Stanley: Or maybe there’s just too
many value investors in Singapore, you know not enough speculators, so
everybody is just buying and holding. So, all of you guys, stop being value
investors, start speculating in the market. Okay! Going on now, on the
derivative side; for Bursa Malaysia, also a growing business; the annual
contract has grown from just 6.1 Billion in 2008, to now about 13 almost 14
billion in 2018. So, that’s a growth of value of 8.4% over the past decade. So,
that’s very, very impressive. Of course, the derivative markets are still dominated
by two key contracts; which are their crude palm oil futures, and also the KLSE
futures itself. What about SGX business?
Willie: The SGX derivatives
business actually has been growing far larger than its securities business
actually, and right now, most of the derivatives contracts are dominated by the
international contracts. So, your China A50 contracts, your Nikkei contracts,
and of course, the largest global market of course is the nifty 50 futures contracts.
So, they have very strong international exposure versus Bursa, which is largely
Stanley: Yeah! Okay, but I would
want to be the devil’s advocate here Willie, I also checked out SGX report, but
it seems that the derivative, although it’s growing, and it’s doing quite well.
it’s still very much dominated by just a few contracts, mainly the China A50 futures
contract, which makes up more than 50% of their volume. Wouldn’t you see that
as a concentration of risk?
Willie: I think right now, when
we talk about finance global markets, there’s a borderless market right now in
international finance. things can be easily tradable, not just within the
country, but you can always go cross-border. So, as the pie grows, let’s say
the DK, the US and China, as it grows let’s say one of the countries grows and out-listed
the other, it doesn’t mean that it’s a zero-sum game. So, all of these contracts or the volume can
grow at same time, so if you’re trying to say; let’s say, if the Chinese
economy overtakes Japan, doesn’t mean that the Nikkei contract will actually
string, but Japan economy can also benefit from from China itself.
Stanley: So, everybody can grow
Stanley: Tell that to Donald Trump.
So, these two are still the biggest segments for both companies; Securities and
the Derivatives market, but let’s look at some of the other growth areas that
could be happening, that we can look forward to, for these two exchanges. For
Bursa; definitely one of the key growth drivers for them is becoming an Islamic
capital market, not just for Malaysia, but for the world. You know that Islamic
finance is one key growth area globally, a lot of the – even large banks, they
are starting to have Islamic banking cooperation as well, within their outfit,
and definitely Bursa has done a very good job, I just shared with you some of
the slides, that they have actually built a very strong Islamic exchange right
now, of course not everybody is aware of it, because they mainly still serve
the institutional clients, and from 2010; it’s starting from zero, zero volume,
they actually now have grown it to having an annual daily value of 24 billion a
day in 2018. So, that’s almost equivalent value of being traded compared to their
security business as well. So, it’s almost as big as the security business, so
this is pretty impressive I would say. Secondly, they have started a new market
called Leap market; that is more for smaller companies, SME companies to start
listing on Bursa exchange, and I think it’s initiative by them, pushing to
start to compete with a lot of the Peer-To-Peer, or even ICO, you know the
cryptocurrency innovation happening around the region. So, instead of SME now,
there is a lot of choice of raising funds, and you know not thinking of just
listing, but they can go to a lot of peer-to-peer listing platforms, or even do
an initial point offering, and so Bursa is trying to create this leap market,
to try and encourage more SME to choose Bursa as the choice of raising funds,
instead of going to all these P2P businesses, and I think they have started
some good traction on that. So, that will potentially be some growth for them,
because once SME is stuck in a leap market, as they grow bigger and bigger,
they can go into the ACE market, and then going forward to the main board as
well. So, once you’re inside, you’re always inside. Right?
Willie: I see.
Stanley: Yeah! and lastly of course
is the ETF market; Government is supporting them as well, on this initiative,
giving them some tax break for the next three years for all ETF products. ETF
is an almost negligible market right now on Bursa, they only have like eight or
nine ETFs, and most of them are very illiquid. So, once they’re able to push that
up, if they’re gonna show that they can grow this, similar to how they grow their
Islamic capital market, then it will be a next growth factor for Bursa Malaysia
as well. Definitely! Hmm.
Stanley: Yeah! Are you impressive
with it now?
Willie: I’m impressed but
talking about the market, I thought that Bursa Malaysia, most of their trading
volume is dominated by the government, at least 50%, so even if they try to
grow like for example, the Leap market to compete with the p2p. Wouldn’t all these
markets still be dominated by the government? The government, the huge
institutions like, our own it’s the natural demand.
Stanley: In fact, I actually think
that it is more stable demand, to be honest, because most of the volume in
Malaysia; of course, I think 70 to 75% is domestic demand. So, less foreign
fancies are trading in Malaysia, and the local funds, even regardless of whether
they are linked to the government or not; the local funds, they will always be
here, regardless of good days, bad days, they will always be here. So, they are
almost like a floor of volume, and liquidity in the market, rather than an
exchange, who is too dependent on foreign investments, and foreign funds. If
anything happens, all the foreign funds of course, all they do is, they will
just exit and run away, and the whole market will actually dry up.
Willie: Okay! That’s a fair
Stanley: Yeah! Okay. let’s look at
some growth area of SGX also Willie.
Willie: Okay! So, with SGX,
there are two key growth areas, which I’ll touch on. Number one is; they are
trying to achieve a strategic collaboration with other exchangers, so as we all
know, SGX right now, the number of listed companies is definitely much smaller,
smaller than Bursa Malaysia as well. Right now, listed companies are not more
money 700. So, the only way to boost let’s say the trading volume, they have to
reach out globally, so I think the whole idea is to do partnership
collaborations. Now, one of them is a partnership with Tel Aviv, trying to get
their companies to say; for example, list in Singapore, or trying to get a dual
class, so that’s one. Another one, of course is, trying to establish an
east-west corridor, so linking up Western economy in the US, which is the US,
and its eastern economy; say for example, Singapore or North Asian companies. So,
trying to link them together, also the same thing, trying to build, say dual
share class companies, trying to provide funding between both parties. So, it’s
more like a bridge in this case, that’s one key growth area. So, SGX in this
case, will get access to more liquidity globally, get access to larger
companies globally, that’s one key growth area.
Stanley: Okay, sounds very exciting
also, [Laughs] but all these are just still talking in progress, or have they
already started something?
Willie: So, they’ve already
started something, but nothing is still ironed out, some talks, but progress is
definitely along the way.
Stanley: Let’s see some action, don’t be late. Okay!Willie: Okay! Second point of our key growth area for SGX; SGX is also trying to work themselves as one of the largest debts listing hub, meaning that they’re trying to grow their fixed income business. So, other than equities, SGX is trying to boost the fixed income platform, already they are one of the largest, if not the largest in Asia, or debt securities listing hub, with more than three thousand bonds from over 40 other countries, and the outstanding size of the bonds, which are being listed on the SGX platform is over one trillion US dollar.
FULL Transcripts will be available for our Private VIA Club Members, to find out more about VIA Club, click here.
Stanley Lim has spent the last decade in the investment industry. Over the course of his career, he has kick-started a few businesses, worked in the family office industry and most recently in the investment advisory industry. He has been a writer and analyst for The Motley Fool Singapore from 2013 to 2017. He has written close to 2000 articles online, on investment education and market analysis. He is the co-writer of the investment book: “Value Investing In Asia”, published in 2018. Stanley is currently the chief editor of Value Invest Asia.