Bursa Malaysia Bhd - Is the constant increase in staff costs justified?

Bursa’s operating expenses had increased by 10% year on year due partly to higher staff costs, which have been increasing. Does the increase justify the talent it is attracting and retaining?

6/6/2014 – Bursa Malaysia said it will remain focused on developing its securities, derivatives and Islamic markets.

It said the underlying strong fundamentals of the Malaysian economy and the steady economic growth prospects are expected to continue to support the confidence of investors.

Ample liquidity in the financial system is also sufficient to support the capital market over the medium term.

The company just announced earnings for Q1 FY14:

Revenue: +12% to RM 123.2 mln
Profit: +18% to RM 45.1 mln
Cash flow from operations: RM 61.6 mln vs RM 59.4 mln
Dividend: 0 sen per share vs 0 sen per share

Bursa said its operating revenue improved due to its securities market revenue, which improved due to higher trading revenue and listing and issuer services.

The securities market’s segment profit was up by 28% to RM 68.3 mln from Q1FY13. The higher profit was mainly due to higher trading value on the securities market.

The derivatives market’s segment profit decreased by 18% to RM 12 mln. Despite higher trading volume in Q1, the derivatives market segment profit was lower as result of lower guarantee and collateral management fees earned.

Bursa Malaysia is Malaysia’s stock exchange.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Is the constant increase in staff costs justified?

Bursa’s operating expenses had increased by 10% year on year due to higher staff costs, which rose 20% to RM 32.6 mln, IT maintenance and service fees.

In Q4 FY13, its staff costs increased year on year by 33% to RM 36 mln, which RHB said reflected a higher variable cost component due to the good results.

For FY13, its staff costs increased by about 12% to RM 120 mln, with increases in every quarter.

Does the increase in staff costs justify the talent it is attracting and retaining? Does it intend to stem the constant increase in staff costs? When will this plateau?

Question

2. Why the weaker guarantee and collateral management fees?

In Bursa’s derivatives market, derivatives trading income dropped by 7% year on year to RM 17.2 mln in Q1FY14, due to lower guarantee and collateral management fees.

According to page 113 of Bursa’s 2013 annual report, guarantee and collateral management fees fall under its Other Derivatives Revenue. And according to the past three quarters’ financial reports, Bursa’s Other Derivatives Revenue has been decreasing for the past three quarters. It dropped this quarter by 25% to RM 3.7 mln. This is despite growth in its overall derivatives trading revenue.

Why is Bursa’s guarantee and collateral management fees decreasing?

Total number of questions in the full story: 8)

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message).

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