SINGAPORE (Jan 22): SGX on Friday announced that its 2Q18 earnings remained flat at $88.4 million compared to $88.3 million in 2Q17.
The group’s revenue for the quarter ended December saw a 3% increase to $205 million from $199.6 million a year ago.
SGX’s revenue from its derivatives segment rose 11% to $83.3 million from $75.0 million last year, while revenue from its market data and connectivity segment also increased 4% to $24.2 million compared to $23.3 million in the previous year.
However, these improvements were partially offset by a 4% decline in revenue from the group’s equities and fixed income segment, which accounted for 48% of its total revenue.
The group’s expenses increased by 5% to $102.1 million in 2Q18, from $97.2 million a year ago, mainly due to higher staff costs and technology expenses, partially offset by lower discretionary expenses.
The group’s securities daily average value (SDAV) for the quarter stood at $1.14 billion, 5% higher y-o-y, but down 2% q-o-q.
SGX also declared an interim dividend of 5 cents per share for the period, unchanged from a year ago.
See: SGX posts flat 2Q earnings of $88 mil as higher costs offset revenue rise
Following the announcement of the group’s results, DBS continues to rate SGX “buy” with an increased target price of $8.90.
In a Monday report, analyst Lim Sue Lin says, “We reiterate our positive view on SGX given improved sentiment on the market, and higher volumes for both equities and derivatives businesses. We expect SGX’s earnings to grow by 4-11% going forward, after a relatively weak FY17.”
Lim is also more positive on the Singapore market activity for both securities and derivatives.
In addition, the analyst believes that the group’s continued efforts to drive market liquidity and new product initiatives should bear fruit in the coming years.
Similarly, RHB is maintaining its “buy” recommendation with a target price of $9.00.
2Q18's average equities clearing fee was 2.93bps, a decrease from 2Q17’s 2.97bps due to a higher proportion of trading from market makers.
Consequently, securities trading and clearing fees were down 1% y-o-y and accounted for 25% of total revenue. Post-trade services revenue fell 15% y-o-y due to contract processing revenue decline – contract processing would be performed by brokers as they continue to migrate to their own back office systems by end-3Q18.
In a Monday report, analyst Leng Seng Choon says, “We forecast FY18 net profit growth of 9.7%.”
Meanwhile, CIMB is maintaining its “add” call on Singapore Exchange with a target price of $8.50.
Increase in the group’s derivatives revenue was thanks to growing volumes of 48.6 million contracts, an 18% increase y-o-y, which offset the lower average fee per contract of $1.07, compared to $1.16 previously, due to higher volumes from trading members.
Higher activity was particularly evident in China A50 futures, Nikkei 225 futures and MSCI Singapore futures.
In a Friday report, analyst Ngoh Yi Sin says, “We expect derivatives to remain a key growth driver for SGX, as they expand their equity index (new Indian single-stock futures) and commodities products (full steel suite).”
Apart from the new product offerings, SGX will also be introducing other key initiatives – including a dual-class share structure which will be implemented by 1HCY18.
See: Singapore Exchange to implement dual-class share structure
“We also sense management’s optimism on the 2018 IPO pipeline, which could possibly overlap across different sectors,” says Ngoh.
The analyst continues to like the stock but prefers to await a more attractive entry level, but her “add” rating is intact with the stock offering 3-4% forecasted dividend yield.
As at 10.16am, shares in SGX are trading 15 cents higher at $8.13 or 22.3 times DBS' FY18 forecast earnings with a dividend yield of 4.0%.
