Listed in 2005, Bursa Malaysia Bhd (BMB) has established itself to be one of the largest bourses in Southeast Asia.
Its business model and function is similar to Singapore Exchange Ltd (SGX), listed in Singapore. But, despite BMB being the smaller of the two, BMB has delivered better returns to its shareholders as compared to the SGX over the past 5 years. For instance, let us use January 2014 as our point of investment.
For every RM 100,000 invested into:
– The value of your shareholdings would grow to RM 129,725.
– You would receive RM 32,294 in dividends.
– You would grow your capital to RM 162,019.
– Your capital has grown at CAGR of 10.13% a year from 2014 to 2018.
Source: Google Finance
– The value of your shareholdings would grow to RM 118,581.
– The growth comes solely from the appreciation of SGD against MYR.
– You would receive RM 18,389 in dividends.
– You would grow your capital to RM 136,970.
– Your capital has grown at CAGR of 6.49% a year from 2014 to 2018.
Source: Google Finance
Evidently, BMB’s stock price had grown sustainably while SGX’s stock price has moved horizontally during the 5-year period. You may ask, ‘Why?’ Here, I’ll try to answer the following:
- What causes the difference in stock price movements between BMB & SGX over the last 5 years?
- Which of the two stocks would I invest in today and why?
Question 1: Stock Price Movements
I find the quickest way to assess the long-term movement of a stock price is to first look at its profits. Often, stock price movements tend to mirror its profit figures over the long-term. Thus, let us take a look:
BMB has achieved consistent growth in revenue, shareholders’ earnings and as well as earnings per share (EPS) for the last 5 years. Its revenue has grown from RM 388.5 million in 2012 to RM 522.1 million in 2017. This has increased BMB’s shareholders’ earnings up from RM 150.6 million in 2012 to RM 223.0 million in 2017. EPS, which I had adjusted it for bonus issue in 2018, has grown from 18.9 sen in 2012 to 27.7 sen in 2017.
Source: Annual Reports of Bursa Malaysia Bhd
SGX has its financial year end on 30 June, which differs from BMB which has its year end on 31 December.
Similar to BMB, SGX has achieved consistent growth in revenue over the past 5 years. It increased from S$ 715.1 million in 2013 to S$ 844.7 million in 2018. Its shareholders’ earnings, however, had remained rather flat as a result of having a slight drop in profit margins. It has grown marginally from S$ 335.9 million in 2013 to S$ 363.2 million in 2018. It has maintained its EPS at 30 – 35 cents each year from 2013 to 2018.
Source: Annual Reports of Singapore Exchange Ltd
BMB’s growth in stock price has reflected its growth in earnings over the past 5 years. Meanwhile, SGX’s flattening stock price has reflected its stagnant profits achieved during the 5-year period. This should answer why BMB has achieved a growth in stock price while SGX had a horizontal movement in its stock price.
Question 2: Which of the Two Would I Invest Today?
Today, BMB and SGX are trading at RM 7.07 and S$ 7.22 a share respectively.
Its latest adjusted EPS for the year 2017 is RM 0.277. Hence, its current P/E Ratio is 25.52, which is higher than its 5-Year P/E Ratio Highest of 25.32. In Q3 2018, its net assets a share is RM 0.983. Thus, its current P/B Ratio is 7.21, the highest in the 5-year period.
BMB has a history of paying special dividends. Hence, I would eliminate special dividends paid and use only its ordinary dividends to calculate dividend yields. I had adjusted its dividends per share (DPS) to reflect its bonus issue in 2018. For 2017, BMB has paid out RM 0.257 in DPS. Thus, I would expect a dividend yield of 3.63% from investing in BMB at RM 7.07 a share, the lowest in the 5 years.
Calculated based on Figures obtained from Annual Reports of Bursa Malaysia Bhd
Its EPS for the year 2017 is S$ 0.339. Hence, its current P/E Ratio is 21.30, below its 5-Year P/E Average of 23.00. In Q1 2019, its net assets a share is S$ 0.88. Thus, its current P/B Ratio is 8.20, higher than its 5-Year P/B Ratio Average of 7.92. In 2017, it has paid out S$ 0.30 in DPS. Hence, its dividend yield is 4.16%, which is above its 5-Year Dividend Yield Average of 3.85%.
Calculated based on Figures obtained from Annual Reports of Singapore Exchange Ltd
SGX is cheaper than BMB in terms of P/E Ratio. In addition, BMB’s stock price is trading at its highest P/E Ratio while SGX is trading close to its lowest P/E Ratio. SGX, at its current price, would generate a higher dividend yield than BMB. Thus, between the two, at their current prices today, I would go with SGX over BMB.
What about you? You may leave a comment over your pick below. 🙂