By Xavier Kong
Traders tend to keep an eye on the stocks in their portfolios, as do research houses with stocks under their coverage. However, with the dealings of shares supervised by one company, who watches the watcher?
Business model: Bursa Malaysia Bhd serves as an exchange holding company. It was established in 1973 and listed in 2005, and is one of the largest bourses in Asia, hosting almost 1,000 companies under its banner.
The group’s principal activities include treasury management as well as the provision of management and administrative services to its subsidiaries.
Bursa operates in four segments, namely the securities market, derivatives market, exchange holding, and a last segment where it provides a Syariah-compliant commodity trading platform – an electronic trading platform for the bond market and trading of an offshore market rounded up into one segment.
Shareholders and management: The largest stake in Bursa’s shares is held by the Capital Market Development Fund, with an 18.77% stake. Following that is the 16.15% stake held by the Malaysian Finance Ministry, with the third highest stakeholder being JPMorgan Chase & Co, with an 8.64% stake.
Bursa Malaysia has Amirsham Abdul Aziz as chairman of its board of directors. He was named chairman just recently on March 1, 2015. As chief executive officer, the group fields Tajuddin Atan, who has worn the hat for a little more than four years. Tajuddin also holds a 0.05% stake in Bursa’s shares.
Share price performance: Bursa’s share price has been on the uptrend over the past year, with the group’s lowest point of the year being May 15, 2014, at RM7.58 and surging to its highest point of RM8.98 on April 23, 2015.
However, between April 23, 2015 and May 8, 2015, Bursa’s shares have also been seen slipping, closing at RM8.50 on May 8.
What analysts think: With Bursa having recently released its results for the first quarter of its 2015 financial year (1Q15), analysts were in agreement that the net profit of RM47 million for the quarter, up 4% year-on-year, came in within expectations of research houses.
However, despite Bursa being in a net cash position, the group has noted that there will be no special dividends this year, which some research houses has noted is a slight dampener on its earnings. RHB IB has noted that this may be because the group is looking to rebuild its cash pile.
“The company paid a special net dividend per share of 20 sen in both 2013 and 2014, and its cash pile has fallen to RM271 million as at end-1Q15 from RM472 million at end-2012. Nevertheless, Bursa’s recurring dividends still offer decent yields of 4.1% to 4.7%,” noted RHB IB.
It was also noted by Kenanga IB that uncertainties such as the implementation of the goods and services tax (GST) as well as Malaysia’s rating review, along with the US Federal Reserve rate direction will continue to cast shadows for a while over Bursa.
As such, Kenanga IB believes that investors, especially those within the retail segment, will be more likely to stay on the sidelines and become more vigilant with their trading habits, which in turn might affect trading volume.
“Overall, we expect lacklustre trading activities in the securities and derivatives markets in the short term,” said Kenanga IB.
TA Securities noted that, over the long term, Bursa’s ongoing efforts to revitalise the market by drawing new and young retail investors through new product offerings and marketing campaigns such as the BursaMKTPLC should be successful in drawing in more traders and increasing trade volume.
“Supported by vast information made available online coupled with the ability to trade cheaper on the Bursa platform, we believe participation should gradually accelerate especially among the Gen Y market. Efforts to improve technology capabilities should also translate into better efficiencies, and hence better earnings,” said TA.
Earnings forecast:
Stockstalk: Historically, Bursa is a solid stock that has continued to grow over the years, having more than doubled from RM4.40 on March 12, 2009, its lowest point in the past six years, to close on May 8, 2015 at RM8.50.
The stock has also continued to issue ever increasing dividends over the past few years, from a final dividend of 13.5 sen per share in its 2012 financial year, to the most recent 18 sen per share at the end of its 1Q15.
However, in view of the implementation of GST and the depressed market sentiments over broad macro uncertainties, trading activities will likely be softer for Bursa for the next while, which could see depressed margins for the stock. This is further dampened by concerns over the potential outflow in foreign funds, especially in the second half of 2015.
Still, the long term could be the brighter future that Bursa is striving for, as the group has taken steps and actions to attract and interest Gen Y Malaysians by simplifying the process of trading in stocks, with initiatives such as BursaMKTPLC, which compiles information in one place for the ease of the trader, be they new or experienced.
Over the long term, this could see an increase in traders on the local bourse, which in turn would mean better margins for the group.
It should still be a matter of caution, however, as the stock, while showing a slight downtrend, is still valued quite highly at its last close of RM8.50. As such, investors should be cautious about taking this stock into their portfolios, as, despite the bright long term the group may see, the short term remains filled with uncertainties.
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KiniBiz makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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