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Friday, 5 May 2017

(The Star) CIMB Research: Bursa may raise listing, clearing fees

PETALING JAYA: Bursa Malaysia Bhd could be mulling a revision of its listing and clearing fees, which will be positive for the stock exchange operator’s revenue.

CIMB Research, which hosted a non-deal roadshow for Bursa last week, said that Bursa management stated that the exchange’s rates for the listing and clearing fees are lower than those charged by the Singapore Exchange Ltd (SGX), leading the research firm to believe that the company may have plans to revise the rates.

If this happens, it would be positive for Bursa’s revenue.

“We estimate that every 1% increase in the clearing and listing income will raise Bursa’s net profit by 0.7% and 0.2%, respectively,” CIMB Research said in a report.

Currently, the annual listing fee for listed companies on the Main Market of Bursa Securities is fixed at 0.0025% of the total market value of the issued capital of the companies, subject to a minimum fee of RM20,000 and a maximum fee of RM100,000. CIMB Research said it understood that the cap and floor for the SGX’s fees are higher.

The research house noted that the current clearing fee is charged at a rate of three basis points (bps) of the value of the trade with a cap of RM1,000. Because of the cap, the effective clearing fee rate is 2.35 bps. Comparatively, the clearing fee rate for the SGX is much higher at 3.25 bps with no cap.

“Based on the above, we think that there is scope for Bursa to improve its listing and clearing fees. For the listing fee, Bursa could increase the ceiling and floor for the fee charged. For the clearing fee, we think that Bursa could reduce that rate but withdraw the cap. This will lead to an increase in the clearing fee’s effective rate,” the research firm said.

Clearing and listing fees accounted for 33.2% and 10.6%, respectively, of Bursa’s total revenue in the financial year ended Dec 31, 2016 (FY16). However, the potential enhancement of Bursa’s revenue from the rate revisions could be partly offset by a possible drop in trading value arising from the higher cost of trading.

In CIMB Research’s view, the higher listing fee would not have a significant impact on Bursa Securities as a listing destination for companies.

“The existing listing fee of RM20,000 to RM100,000 is relatively low as a percentage of the listed companies’ total costs. We think that any increase in listing fees would be easily absorbed by the (prospective) listed companies.”

Elsewhere, the exchange also has plans to launch more products in the derivatives market.

Bursa currently offers 13 products in the derivatives market.

“We gather that one of the products in the pipeline is the currency futures contract, probably ringgit/US dollar and ringgit/yuan.

“However, it may take a longer time to launch this, as it needs the approval of Bank Negara.”

The research firm said it is positive on any potential launch of new products, as this would increase Bursa’s revenue from the derivatives business.

It noted that Bursa’s derivatives trading income had slid by 5.8% year-on-year (y-o-y) to RM21.2mil in the first quarter of FY17 (Q1’17) despite the 7.3% y-o-y increase in the average daily contracts to 62,100 in the derivatives market.

The management explained that the decline could be attributed to the downward revision of the guarantee fee rate from 0.5% per annum in 2016 to 0.3% per annum in Q1’17 imposed on the margins on contracts’ open positions.

On another note, CIMB Research is also of the view that Bursa had the scope to declare a special dividend, given its strong cash position and yearly cashflow.

“We estimate that Bursa had total excess cash of about RM150mil as at end-March 2017. Assuming all of this is paid out, the potential maximum special dividend will be 28 sen per share, translating into an additional yield of 2.7%.

“If 50% of this is paid out, then the special dividend would be 14 sen per share or an additional dividend yield of 1.4%,” said the research firm, retaining its “hold” call on Bursa, as it believes the positives have been largely priced in at the current valuations.

For Q1’17 ended March 31, Bursa’s net profit after tax and minority interests increased by 13.4% to RM56.6mil as compared to the same period last year.