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PE Ratio = Share Price / Earnings Per Share

Where Earnings per share (EPS) is a company’s Net Profit After Tax and Outside Equity Interest, divided by the Weighted Average Equivalent Number of Shares issued.

For example if a company makes a net profit after tax of RM10 million and it has 100 million issued shares, its EPS would be RM0.10. If its share price is RM1.20, the PE ratio is 12x, meaning that the share price is trading at 12 times its earnings.

PE Ratio is commonly used as a rule of thumb to determine whether or not a company’s shares are reasonably priced by the market. Smaller companies on Bursa Malaysia are typically valued at PE Ratios of between 7 to 12 times earnings per share, while larger caps typically command PE Ratios of 12 to 15 times earnings per share.

Note: There are several variants to this calculation including Diluted PE Ratio and PE Ratio before Abnormal/Exceptional/Unusual/Extraordinary Items.

PE Ratio Normalized
This is the PE Ratio of the share before the impact of Abnormal, Exceptional, Unusual and Extraordinary Items. Such items typically include:

• One-off gains & losses (items not in the normal course of business)
• Items which are unusually large, even though they are in the normal course of business
• Property revaluations in the case of REITs

PE Ratio Normalised is the Share Price divided by the Adjusted EPS.

In our calculation, we take the Net Profit After Tax and deduct Abnormal, Exceptional, Unusual and Extraordinary Items. This gives us the Adjusted Net Profit. We then take this figure and divide by the Weighted Average Equivalent No of Shares to arrive at the Adjusted EPS.