Bursa Malaysia Bhd - Why did revenue for derivatives market fall?

28/8/2014 – Bursa Malaysia's management says it thinks the underlying strong fundamentals of the domestic economy will lead to more foreign funds inflow and continuing support from local institutions for the equity market.

It thinks the dry El Nino weather, which will affect palm oil production, will continue to affect trading of its two key contracts on the derivatives market - the FKLI and FCPO contracts.

Bursa expects FCPO contracts to pick up in volume in the remaining months of the year.

The national stock exchange also expects to see an increasing need for Shariah compliant products due to the demand from Islamic funds, as well as those funds dedicated to ethical investments.

Wider usage of Murabahah contracts is expected to spur greater utilisation of its commodity trading platform, Bursa Suq Al-Sila' (BSAS).

The company just announced earnings for Q2FY14:

Revenue: -5% to RM 115.5 mln
Profit: -14% to RM 46.9 mln
Cash flow from operations: RM 102.7 mln vs RM 112.2 mln
Dividend: Special dividend of 20 sen per share, interim dividend of 16 sen per share vs special dividend of 20 sen per share, interim dividend of 16 sen per share

In its financial statement, Bursa discusses the performance of its two main segments: the securities market and the derivatives market.

The stock exchange operator said the operating revenue for its securities market decreased mainly because of a decline in trading revenue.

The segment's profit was also lower due because there was exceptional volatility a year ago, as a result of the 2013 general election.

Operating revenue from the derivatives market also fell, mainly from lower guarantee and collateral management fees earned, which are components of trading revenue.

The derivatives market recorded a lower profit year-on-year despite higher trading volume in the quarter. Bursa said the lower profit was a result of lower margin requirement.

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

Question

1. What is the real reason for the fall in derivatives market revenue?

Although Bursa's revenue decreased year-on-year, the drop was not a surprise as it was difficult to top the buoyant investor sentiment the same time last year after the general election.

But trading revenue for Bursa's derivatives market fell year-on-year by 7% to RM 16.1 mln in Q2FY14.

Bursa just stated that the drop in derivatives trading revenue was due to lower receipts from guarantee and collateral management fees.

But what is the real reason for the fall in derivatives market revenue?

Question

2. Why were there no more IPOs by overseas companies?

There were no listings by overseas companies on Bursa this quarter.

In contrast, Singapore's SGX has in the last three months welcomed Indonesian Japfa that processes meat and operates dairy farms, Terratech which operates at the Kelantan Marble Quarry in Malaysia, Accordia Golf Trust which handles golf course assets in Japan, and Spackman Entertainment which produces Korean films.

Total number of questions in the full story: 8)

We have invited the company to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do.

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