Singapore Exchange (SGX) saw a big drop in new listings as markets become more volatile.
Yet, in a sign that its earnings base is not so closely tied to trading interest brought about by big new issues, the bourse on Aug 18 reported that it roughly maintained its earnings at $451.4 million for FY2022 ended June, up 1% y-o-y.
Revenue was up 4% y-o-y to $1.099 billion — its highest since the exchange was listed in November 2000.
Loh Boon Chye, CEO of SGX Group, says: “Our record-high revenue was driven by higher derivatives volumes across equities, currencies and commodities, as our global customers increasingly use our multi-asset platform to navigate market uncertainties.”
“Our fixed income, currencies and commodities (FICC) business remains a key growth engine and is expected to deliver mid-teens percentage revenue growth in the medium term,” he adds at the briefing of the FY2022 results’ release on Aug 18.
For FY2023, the exchange plans to build on the ongoing momentum of these new businesses to further lift trading in commodity and FX (Foreign Exchange) futures. The bourse is keeping its medium-term revenue growth expectation of a “high single-digit percentage range”.
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Separately, Hong Kong Exchanges & Clearing (HKEX) reported on Aug 17 that first-half earnings dropped by 27% y-o-y to HK$4.84 billion ($850 million) as pandemic restrictions hampered business and finance activities, leading to lower trading volume and a smaller number of new issues.
HKEX is still much bigger than SGX, with a market cap of HK$425 billion that is seven times larger.
Quiet on listings, FX stays hot
Amid a challenging economic climate, the number of new listings on SGX has decreased. Potential debutants, such as Thai Beverage’s spinoff of its multi-billion beer business, which has been in the works for more than three years, were once again delayed. Across the 17 new equity listings on SGX in FY2022, a total of $1.9 billion was raised, up from $1.0 billion in FY2021.
In a continuation of a traditional trend, the amount raised by secondary equity outweighed new listings. However, with just $5.7 billion raised, the amount is but a third of FY2021’s $16.9 billion.
For the six months ended June, SGX welcomed 14 debutants: Three Spacs, two exchange-traded funds (ETFs) and nine company listings. Among them, three of the new big listings are by introduction, with no new funds raised: Chinese electric vehicle maker Nio and spirits company Emperador from the Philippines, as well as Yangzijiang Financial Holding, which was spun off from SGX-listed Yangzijiang Shipbuilding.
Nio and Emperador are both secondary listings, as they are already listed on the NYSE and in Hong Kong and Manila respectively. The remaining six listings raised $43.76 million.
In comparison, SGX’s three Spacs together raised $529 million in January. Further dwarfing these figures were the late-2021 debutants of Digital Core REIT and Daiwa House Logistics Trust, which raised US$600 million and $464.4 million respectively.
While striking the IPO gong generates much fanfare, SGX has found greater opportunities in other products. SGX’s equities revenue fell slightly to account for 64% of total revenue, down from 66% in FY2021.
Conversely, SGX’s FICC revenues increased to account for 23% of total revenue in FY2022, up from 20% in FY2021.
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As part of the FICC segment, SGX’s over-the-counter foreign exchange (OTC FX) pillar contributed a “meaningful” 5% to group revenue, says SGX’s CFO Ng Yao Loong. OTC FX’s revenue surged 47% y-o-y to $58.4 million in FY2022, following the acquisition of multi-asset trading platform MaxxTrader in January.
While SGX’s OTC FX figures were previously dominated by its cloud-based FX trading subsidiary BidFX, the OTC FX pillar in FY2022 comprised turnover from BidFX, MaxxTrader and SGX’s Electronic Communication Network (ECN), which went live in November 2021.
As a result, OTC FX average daily volume (ADV) surged 64% y-o-y to US$70.6 billion. Looking ahead, SGX says OTC FX is on track to achieve an ADV of US$100 billion “in the medium term”, with an addressable market of US$2.5 trillion. “Upon maturity, or where the [platforms are] more stabilised, margins of the OTC FX are expected to be about 40% to 45%,” says Ng.
OTC FX’s outperformance boosted trading and clearing revenue of currencies and commodities, which were up 21% to $183.9 million. Along with treasury and other revenue, currencies and commodities revenues increased 22% to $240.6 million.
The smallest unit within the FICC segment is fixed income, which contributed about 1% to SGX’s total group revenue. Fixed income revenue declined 18% y-o-y to $12.2 million.
Listing revenue plunged 24% to $8.7 million, while corporate actions and other revenue inched up 2% y-o-y to $3.5 million. SGX saw 1,179 bond listings in FY2022 amounting to $429.6 billion, up from 795 listings worth $389.1 billion the year prior.
Lower trading value
While FICC revenue increased 19% y-o-y to $252.7 million, equities revenue from both cash and derivatives fell slightly to $698.9 million from $701.1 million.
Amid market uncertainties, SGX’s daily average traded value (DAV) of cash equities declined 6% y-o-y to $1.27 billion. The total traded value for the year declined 5.67% y-o-y to $320.8 billion.
Cash equities, which include ordinary shares, REITs and business trusts, saw total traded value decrease 6% y-o-y to $308.1 billion.
Other products, which include structured warrants, ETFs, daily leverage certificates, debt securities and American depository receipts, saw its traded value increase 16% to $12.7 billion. There were 252 trading days in FY2022, unchanged from the year prior.
On the other hand, derivatives equities saw 8% higher revenue y-o-y at $310.4 million. Trading and clearing revenue increased 22% y-o-y to $281.9 million, mainly due to higher average fees and volumes from SGX FTSE China A50 and SGX Nifty 50 Index futures.
The SGX’s last segment — data, connectivity and indices — saw 3% higher revenue y-o-y to $147.4 million, accounting for 13% of total revenue.
‘Necessary choices’
SGX plans to maintain a final quarterly dividend of eight cents. This brings the total FY2022 payout to 32 cents, unchanged from every quarter since 4QFY2020.
When examining total shareholders’ return, dividend income is “clearly an important part”, says Ng, in response to questions if SGX will improve its dividend payout.
He adds, however, that “earnings growth is also a key component of total shareholder return”.
Loh adds: “As you have seen from our track record, we have always steadily increased our dividend in line with sustainable performance, we are still investing for growth. And we look towards rewarding our shareholders as our performance sustains at a higher level.”
A recent Financial Times story claims SGX officials have been in constant contact with Singapore-headquartered Grab and Sea — listed on the Nasdaq and NYSE respectively — to do a secondary listing back home.
Companies have to make “necessary choices,” says Loh, without referring to Grab and Sea directly. “If you look at recent months, having Nio and Emperador listed here, clearly the [SGX] platform creates value for companies. SGX has round-the-clock liquidity, exchange partnerships and access to this part of the world. That’s clearly the value proposition.” Michael Syn, SGX’s head of equities, says it is “a natural right” for SGX to offer its services.
“We pride ourselves on having a fully ‘verticalised’ and ‘horizontalised’ market infrastructure.”
As for SGX, it will seek other revenue sources beyond listings, primary or otherwise. “Grab and Sea, for example, they [can] get evening liquidity from our derivatives … because we are the home of MSCI Singapore futures and we trade the longest hours,” explains Syn, referring to the window when US markets are shut but Singapore is open.
“We have listed single stock derivatives to allow risk managers in the Asian time zone to exchange risk on those names in a safe and practised way before the US opens,” adds Syn.
“So, the value proposition that they would need to find for themselves is: ‘How do I serve my issuer base better [and] expand my capital markets’ efficiency better by using the market infrastructure of choice?’”
