Bursa Malaysia Berhad (Bursa Malaysia) is an exchange holding company responsible for the stock exchange of Malaysia. It is an integrated exchange, offering a full suite of products. Examples of offerings include Equities, Derivatives, Offshore and Shariah-compliant products, Exchange Traded Funds (ETFs), Real Estate Investment Trusts (REITs), Structured Warrants (SWs) and Exchange-Traded Bonds and Sukuk (ETBS). They also offer Bursa Suq Al-Sila’.
Most of us know that Bursa Malaysia obtains the majority of its earnings by charging individuals a fee when we buy or sell a share. Bursa Malaysia also earns some of its revenue through IPOs and listing of company equities to the share market.
Bursa Malaysia also offers derivatives market trading. It’s derivatives segment products includes Gold futures, Crude Palm Oil Futures (FCPO), Options on Crude Palm Oil Futures (OCPO), and the FBMKLCI Futures.
Bursa Malaysia Bhd is the sole company in Malaysia empowered to manage the stock exchange and the derivatives market. Hence, this makes it the sole national monopoly in this business segment!
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Management & Major Shareholders
Datuk Muhammad Umar Swift is the current CEO of Bursa Malaysia Bhd. He took over the position from Datuk Seri Tajuddin Atan, who held the position for 7 years. Datuk Muhammad Umar Swift brings with him years of experience within the banking and insurance area.
Ms Rosidah Baharom is the current acting Chief Financial Officer. Her tenure with Bursa Malaysia stretches back to the year 1998. She has held various positions within Bursa Malaysia before her latest stint as CFO. This will be her 6th year as CFO of Bursa Malaysia Bhd.
Other key management executives include Mr Mahdzir Othman, Director of Securities Market, Samuel Ho Hock Guan, Acting Chief Executive Officer, Bursa Malaysia Derivatives Berhad, Ms Tay Yu Hui, Market Operations Director and other key members as well.
The top shareholder of Bursa Malaysia Bhd is Capital Market Development Fund (CMDF). CMDF is administered by the Board of Trustees, whose members are appointed by the Minister of Finance. The Chairman of the Securities Commission Malaysia (SC) chairs the CMDF, given that the CMDF was established by the Capital Markets & Services Act, which is under the SC’s purview. The Deputy Chief Executive of the SC sits as ex-officio and a senior representative from Bursa Malaysia also sits as a representative from the Exchange.
The remaining top shareholders are mainly local fund houses. This includes Permodalan Nasional Berhad and our Employees Provident Fund Board (EPF).
Bursa Malaysia has grown steadily for the past 10 years. Its 2019 fiscal year revenue is at RM 502 million, up by 39% from 10 years ago. It’s profit trail consistently with its revenue trend, registering an amount of RM 189.5 million. The current fiscal year performance is softer than its preceding year. This is due to a softer and bearish market outlook. But what is fascinating about Bursa Malaysia is its high net profit margin. Its net profit margin is in the region of 35% to 40% consistently.
Due to that, Bursa Malaysia reports relatively high Return on Assets (ROA) and Return On Equity (ROE). Its ROA is always stable around 10% for the past 10 years. Also, the ROE shows a positive upward trend within the region of 20-30%.
|Year||Assets (RM’000)||Liabilities (RM’000)||Equities (RM’000)||Current Ratio|
Bursa Malaysia’s Total Assets for the fiscal year 2019 is at RM 2.32 billion. This is RM 113.5 million lesser than its preceding year. During the current financial year, Bursa Malaysia Group has an investment disposal on CME Group Class A common stock at a cost of RM42,425,000 for RM164,223,000. This translates to a gain on disposal of RM121,798,000.
Gains from investment was then used to finance the acquisition of the remaining 25% equity interest in Bursa Malaysia Derivatives from CME Group Strategic Investments LLC (CMEGSI). Upon the disposal of these quoted shares, the Group and the Company had transferred the realised gain of RM121,798,000 from the FVTOCI reserves to retained earnings accordingly.
Equities dip down to RM 761 million due to that too, while liabilities are flat at RM 1.56 billion.
Operating Cash Flow & Dividends Paid Out
Source: BURSA MALAYSIA BHD ANNUAL REPORT
Bursa Malaysia Bhd is growing its cash flow steadily as well year on year. This is in tandem with its stable revenue growth too.
The fiscal year 2019 numbers are down a bit against the fiscal year 2018 due to softer market sentiments. The market goes up and down in cycles, hence Bursa Malaysia’s performance hinges heavily on it. But, being the only stock exchange operator means there is no worry that its business moat will face disruptions. In fact, Bursa Malaysia has been receptive in adopting science and technology. It’s latest app Bursa Anywhere has been well-received. It enables retail investors to check their shares within their Central Depository System holdings.
Bursa Malaysia Berhad is a special company in a highly regulated business segment. Being a service orientated company, it is in an asset-light business. This means it does not need to buy machinery and buildings to further scale its business.
However, if compared against its peer in Singapore, SGX Limited, Bursa Malaysia may not be the best. But in a good way, that means there is plenty of growth still for Bursa Malaysia. It is a steadily growing cash cow company. Hopefully, the dividend payout would increase in tandem. given that it has a 75% dividend payout policy.
Stock exchanges companies may be a monopoly within their operating countries. But in reality, they compete with other exchanges from other countries. This is to attract public listing of companies around the world. One great example is how SGX is preferential for REITs listings. This is due to its single-tier tax structure. Meaning, REITs listed in Singapore pay out full distributions as it is. While in Malaysia, there is a 10% withholding tax on gross distributions of Malaysian REITs.
To continue to grow beyond its levels significantly, there is so much more Bursa Malaysia has to do. But at the moment, growing within Malaysia, which is still a developing country, may be good enough.
The question is, what price would you consider to buy Bursa Malaysia Berhad?