BURSA is Malaysia's sole stock exchange that provides listing, trading, clearing and settlement services. It enjoys wide economic moats as the monopoly exchange. In FY2015, BURSA reported record net income of RM198.6 million despite a challenging market environment. However, it faces risks from a potential lack of new listings and weak retail participation on the exchange. Going forward, BURSA aims to drive growth through new product offerings and expanding its regional presence.
2. DISCLAIMER
I am NOT an investment advisor nor a financial advisor, and no information provided
here is to be interpreted as a suggestion to buy or sell securities.
You and I may have different opinion, but I respect your opinion.
All figures in MYR and in '000s, except per share data
2
4. SCOPE
• Figures and ratios are based on the figures reported in Annual Report or the latest
Q4 Quarterly Report (QR)
• Unless there is a need, this analysis will not include financial figures reported in Q1,
Q2 and Q3
• I will provide QR result highlights in my blog
• Valuation is not covered in this analysis
• I will provide valuation in my blog.
5. CHANGES
• 13 Feb 2015 – FY15 results
• 21 Oct 2015 – First write up of BURSA in PowerPoint format
• 9 Dec 2015
• Applied new template
• Change presentation of some data.
7. BUSINESS PROFILE
• An exchange holding company, whose principal activities are treasury management
and the provision of management and administrative services to its subsidiaries
• Operates and regulates a fully-integrated exchange, offering a range of exchange-
related facilities including listing, trading, clearing, settlement and depository
services
• Offers its products covering equities, derivatives, offshore listings and services and
bonds and Islamic offerings.
8. BUSINESS PROFILE (CONT.)
Securities
Comprises the provision and operation of the listing, trading, clearing, depository
services and provision and dissemination of information relating to equity securities
quoted on exchanges for the securities market
Derivatives
Comprises the provision and operation of the trading, clearing, depository services
and provision and dissemination of information relating to derivative products quoted
on exchanges for the derivatives market
Others
Comprises the provision of a Shari’ah compliant commodity trading platform, a
reporting platform for bond traders and the provision of an offshore market
10. TOP 5 SHAREHOLDERS
Position Date: 21 Jan 2016
Holder Common Stock Held % of Total Shares Outstanding
KUMPULAN WANG PERSARAAN 105,830,400 19.8%
CAPITAL MARKET DEVELOPMENT
FUND 100,200,001 18.7%
JPMORGAN CHASE & CO, PRIVATE
BANKING AND INVESTMENT
BANKING INVESTMENTS 46,094,582 8.6%
EMPLOYEES PROVIDENT FUND OF
MALAYSIA 39,018,194 7.3%
PERMODALAN NASIONAL BERHAD 32,472,000 6.1%
11. OWNERSHIP ANALYSIS
• BURSA issued ordinary shares to employees every year, and also there are potential
ordinary shares which may arise from the SGP grants. Dilution of EPS is not
significant.
14. ECONOMIC MOATS
• Cost Advantage (Wide)
• BURSA is the one and only stock exchange in Malaysia. Its pre-tax margin throughout
the years are consistently above 50%
• Switching Costs (Wide)
• The sole fully-integrated exchange in Malaysia
• Network Effect (Wide)
• The sole fully-integrated exchange in Malaysia.
• It has a niche in Islamic investment products
• It has the largest derivatives exchange dealing palm oil contracts.
15. ECONOMIC MOATS (CONT.)
• Intangible Assets (Wide)
• The sole fully-integrated exchange in Malaysia
• Efficient Scale (Wide)
• Malaysia unlikely to have two exchanges
• Any company wants to be listed in Malaysia stock exchange must go through BURSA.
16. ECONOMIC MOATS (CONT.)
2011-12-31 2012-12-31 2013-12-31 2014-12-31 2015-12-31
ROIC 37.0% 40.3% 43.7% 46.3% 52.5%
CROIC 46.6% 44.0% 45.1% 46.7% 50.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
ROIC and CROIC
The wide economic moats are further
proven with high ROIC and CROIC.
19. KEY OPERATING DRIVERS (CONT.)
• The sharp decline in the number of CDS accounts in 2014 was due to the
implementation of automatic closure of dormant CDS accounts that were
designated as dormant on or before 2010
• This maiden exercise to close such dormant CDS accounts was performed on 25
August 2014 affecting approximately 2.0 million CDS accounts.
27. PROFITABILITY (CONT.)
• FY15 net income of RM198.6m (+0.2%yoy) was only marginally higher compared to
the previous financial year’s corresponding period
• Nevertheless, it was still a record high despite the challenging market environment.
28. PROFITABILITY (CONT.)
• From FY11 to FY15, BURSA’s pre-tax income grew 8.4% in CAGR
• Higher participation from local/foreign institutional funds and retails
• Bullish market where FBMKLCI index increased from 1,200 level to 1,600 level
• In the past 10 years, BURSA has been enjoying very high pre-tax margin, and the
margin increased dramatically from FY10 onwards
• BURSA has very high dependency on market sentiment
• Bearish market sentiment reduces participation of trading/investing in market
• This is clearly shown from FY08 to FY10
• Adjusted FY09 pre-tax income by deducting one-time income from disposal of a
subsidiary (FY09: RM75,975 mln).
30. PROFITABILITY (CONT.)
• Securities market is the main revenue contributor, but revenue contribution from
derivatives market has been improving over the years
• Evidently, we see 65% YoY (FY15: 17,382 mln; FY14: 10,514 mln) growth of revenue
in Syariah compliant commodity trading platform and the reporting platform.
34. GROWTH DRIVERS
• 17 Jun 2014 – For the derivatives market, a new USD denominated Refined Palm
Olein Futures Contract (FPOL) was launched. Bursa also inked an MoU with the
Saudi Stock Exchange (Tadawul) to develop cross border activities in capital market
development. A new Environmental, Social and Governance Index, to be launched in
end-2014, targets Socially Responsible Investments funds estimated at USD3.4tr
• 17 Jul 2014 – For the derivatives market, Bursa introduced the new participantship
structure for trading and associate participants – to increase the number of licensed
traders and expand the distribution channel.
35. GROWTH DRIVERS (CONT.)
• 17 Jul 2014 – More ETFs (exchange traded funds) – a form of passive investment
fund that offers investors benefits of diversification – are also in the works including
for equities, commodities and indices for other stock exchanges. In 1Q14, the MyETF
MSCI Malaysia Islamic Dividend was introduced.
37. ISSUES/RISKS/CHALLENGES
• 8 May 2015 – The number of public listed companies on the local bourse has been
on a downward trend – From 957 companies in 2010, it shrank to 906 last year
• the number of new listings have decreased — there were 29 new listings in 2010
compared with 28 in 2011, 17 in 2012, 18 in 2013 and 14 in 2014.
• Bursa is not the only stock exchange that is seeing a slowdown in IPO exercises this year.
As at end-March, Singapore only had one IPO listing. Meanwhile, the Stock Exchange of
Thailand saw five listings in the first quarter of this year while the Indonesia Stock
Exchange had two.
38. ISSUES/RISKS/CHALLENGES (CONT.)
• The current choppy market environment is likely to stay, driving investors to the
sideline or to exit
• Overall, lackluster trading activities is expected in the securities market over the
short-term
• The participation of retail investors in Bursa remains weak. In 2013, despite the
strong post-election rally across the board, the opening of CDS accounts fell to its
lowest in seven years
• This could mean the rally failed to attract new investors, particularly the younger ones.
43. SHAREHOLDER RETURN
Time Frame Date Bought at Original
Value
Dividend
Received
Unrealized
Gain/Loss
Current
Return
CAGR %
3-Y 14 Feb
2013
6.56 6,560 1,360 1,840 9,760 14.2%
5-Y 14 Feb
2011
8.17 8,170 1,860 230 10,260 4.7%
10-Y 14 Feb
2006
4.68 4,680 3,884 3,720 12,284 10.1%
Assumptions:
1. Commission paid is ignored in this simulation
2. The current price is 8.4 (as of the time of writing)
3. Unit purchased is 1,000.
45. DIVIDEND PROPOSAL FY15
• The management has proposed final dividend of 18sen per share, bringing the total
dividends declared to 34.5sen for FY15
• It was slightly higher than the previous year’s dividend of 34.0sen (ex-special
dividend).
46. GOING FORWARD
• This financial year will remain challenging in view of expected softer trading
activities in the near term as sentiments remain depressed by broad macro
uncertainties and concerns over potential outflow in foreign funds in the 2H
• BURSA’s attractive dividend will the main catalyst for the stock
• I will continue to hold and accumulate BURSA as I believe that BURSA has the ability
to overcome the challenges ahead.