The Singapore Exchange (SGX) S68 has increased its quarterly dividend for the first time in 12 quarters. This comes on the back of a 10.3% y-o-y growth in adjusted net profit to $503.2 million for FY2023 ended June.
The bulk of the adjustments, which brought reported net profit down from some $570.9 million, came from a $40 million fair value gain from the exchange’s investment in a closed-end private equity fund managed by 7RIDGE. SGX announced the US$200 million investment into the London-based “growth equity firm” in November 2021, which acquired US-based trading software provider Trading Technologies the following month.
SGX, which has a policy of paying quarterly dividends, proposed a final quarterly dividend of 8.5 cents per share. Prior to this, SGX had paid dividends of 8.0 cents per share for every quarter since 4QFY2020. The latest quarterly payout, to be approved by shareholders at its AGM in October, will bring FY2023 total to 32.5 cents, up from 32 cents.
For FY2023, the bourse operator posted adjusted ebitda of $688.6 million for FY2023, 8% higher y-o-y, while adjusted earnings per share was 47.1 cents, up from 42.7 cents this time last year.
Revenue for the year was nearly $1.2 billion, up 8.7% y-o-y from nearly $1.1 billion reported for FY2022, mainly driven by derivatives revenue, which increased 27.2% y-o-y.
Speaking at the release of the results on Aug 17, SGX’s CEO Loh Boon Chye says his team targets to deliver “high-single-digit” revenue growth and keep expenses — which had increased 7.7% y-o-y to $604.9 million in FY2023 — to a “mid-single-digit” increase in the medium term.
This will allow SGX to reward shareholders with a “mid-single-digit” increase in dividend over the medium term.
However, Loh says the dividend increase will not be immediate. “I would like to look at it in the medium term and not automatically change every quarter. We want to signal to our shareholders that as our businesses grow over the medium term, we reward our shareholders.”
Bright spot in treasury income
See also: Derivatives trading supports SGX's earnings; ongoing momentum seen this year
Treasury income is the interest spread that SGX makes between global interest rates and cash deposited by investors to trade.
Owing to high interest rates, total treasury income grew by $88.9 million during the year. Treasury income on collateral balances held in trust, net of audit services and other charges, stood at $136.9 million at the end of FY2023.
This growth in treasury income far outpaced full-year growth in any of SGX’s sub-segments.
One analyst questioned the sustainability of holding such ample coffers. CFO Ng Yao Loong says the pace of the rate hike has been quite unprecedented. “The market doesn’t think that we are going to see a repeat of that cycle … So, this thing’s exogenous; we will have to deal with it as it comes. Our priority, still, is to make sure that customers’ collateral money is safe,” says Ng.
Analysts also asked if SGX is keeping the funds as dry powder to avoid taking on debt at elevated rates to fund potential acquisitions. Its leverage ratio, or gross debt to ebitda, fell to 1.1x from 1.2x in FY2022.
“Don’t forget, we’re in an evolving environment,” says Loh. “So, we could either pay down debt or we could either retain some cash to invest, because there are still opportunities that we see.”
On product gaps that SGX would like to fill, Loh specifically names fixed income as an “important market”. “It does not necessarily mean we will have to acquire [a company]. I think we’ve shown a history of being a good partner. [When I] talk about the share of a pie versus the size of a pie; if you grow the pie, I think both sides will win.”
See also: SGX maintains FY2022 earnings and dividend, claims 'natural right' to offer listing services
Bond listings normalise from FY2022
SGX’s FICC revenue — comprising fixed income, currencies and commodities revenues — increased 33.8% y-o-y to $338.2 million, accounting for 28.3% of total revenue, up from 23% in FY2022.
During FY2023, there were 918 bond listings with $243.4 billion in amounts issued, down from 1,179 bond listings that issued $429.6 billion in FY2022. In FY2021, there were 795 listings worth $389.1 billion.
Fixed income revenue declined 31.8% y-o-y to $8.3 million, while listing revenue of $5.1 million was down 41.2% y-o-y.
Corporate actions and other revenue was down 8.0% y-o-y to $3.2 million.
Fixed income revenue, which remains the smallest line item among SGX’s revenue sub-segments, shrank from contributing some 1% of total group revenue in FY2022 to 0.69% of total revenue in FY2023.
Meanwhile, revenue from currencies and commodities increased 37.1% y-o-y to $329.9 million, accounting for 27.6% of total revenue, up from 21.9% this time last year.
Of this figure, over-the-counter foreign exchange (OTC FX) revenue increased 29.2% y-o-y to $75.4 million. OTC FX average daily volume (ADV) increased 7.3% y-o-y to US$75.8 billion ($103.25 billion).
With “positive momentum” in the OTC FX business, Loh expects to achieve US$100 billion average daily volume by FY2025 or earlier.
Funds raised in IPOs crash 98%
Amid a slowing global economy, the number of listings across the world has dropped across the board and the same trend is, too, observed in Singapore.
There were eight new equity listings in FY2023, raising just $37.6 million — a sharp drop from the 17 listings in FY2022 that raised $1.9 billion. Secondary equity funds raised during FY2023 totalled $4.8 billion, down slightly from $5.7 billion.
FY2023 listing debutants included Pasture Holdings, Ever Glory United Holdings, YKGI, NoonTalk Media and LMS Compliance, among others. Among them, YKGI raised the most, at $19.8 million. Comba Telecom Systems, already listed in Hong Kong, had its secondary listing here and did not raise funds.
Equity listings continued to flounder amid a “pretty unprecedented environment”, says Pol de Win, SGX’s head of global sales and origination. “On the IPO pipeline, I guess [it’s a] hazy crystal ball, but we’ve had a hazy crystal ball for the past year and a half.”
De Win acknowledges that the market environment has not shifted in the six months since SGX’s previous results announcement. “I think I’m going to say pretty much the same [thing], that for the near term, it still looks difficult. But we’re seeing some early signs of global activity resuming.”
Looking at 2024, de Win says pent-up supply is building up as companies “still need to grow”. “I think we’re going to see that, first and foremost, with some of the highest-quality issuers, perhaps also more in the developed markets … A lot of companies that have been privately capitalised for a long time are now going to need liquidity for their shareholders.”
SGX’s equities revenue, comprising cash and derivatives revenues, increased 1.5% y-o-y to $709.2 million in FY2023, accounting for 59.4% of total revenue, down from 63.6% the year prior.
During FY2023’s 250 trading days, daily average traded value (DAV) for equities declined 13.4% y-o-y to $1.1 billion, while total traded value declined 14.1% y-o-y to $275.5 billion.
Overall average clearing fees for equities decreased 0.07 basis points (bps) to 2.49 bps, while the overall turnover velocity for FY2023 was 37.0%, lower than 42.0% in FY2022.
SGX’s third revenue segment, data, connectivity and indices, saw comparable revenue at $147.1 million, flat y-o-y, accounting for 12.3% of total revenue, down slightly from 13.4% in FY2022.
Looking ahead, SGX expects capital expenditure in FY2024 to reach between $75 million and $80 million, up from $59.4 million in FY2023, in part due to an $8 million deferral. “The planned capital expenditure is to support the growth of our OTC FX business, enhancements to our system architecture and consolidation of our office spaces.”
Total expenses for FY2024 are expected to increase at a slower pace compared with previous years, adds SGX. “Even as we continue to drive the growth of our OTC FX business, we expect to maintain cost discipline to ensure expense growth is in the mid-single-digit percentage range in FY2024.”
