Singapore Exchange - Dampened by Derivatives But Securities Grew
- 3QFY17 net profit was SGD83.1m. Excluding a one-off loss of SGD4m from the disposal of its investment in Bombay Stock Exchange, net profit would have been SGD87m, down 2% YoY. 9MFY17 net profit of SGD254.5m represented 71% of our FY17 net profit forecast of SGD356m.
- 3QFY17 securities average daily value (SADV) of SGD1.24bn was marginally higher than 3QFY16’s SGD1.22bn, and stronger than 2QFY17’s SGD1.09bn.
- 3QFY17 derivatives average daily contract (DADC) of 634k is down 20% YoY, but relatively flat QoQ. The weakness is largely due to a 30% fall in FTSE China A50 Index futures traded YoY – 3QFY16 saw greater equity volatility due to global developments, but this strength was not repeated in 3QFY17.
- Derivatives accounted for 37% of 9MFY17 revenue.
- Interim dividend of 5 cents per share was declared – in line with stated policy. We are forecasting FY17 dividend of 30 cents, giving a yield of 4%, which is higher than Singapore sovereign 10-year bond yield of 2.09%.
- 3QFY17 expenses fell 3% YoY, as lower derivatives volume reduced processing & royalties.
- We maintain our FY17 SADV and DADC assumption of SGD1.19bn and 683k respectively. We see the 3QFY17 QoQ rise in SADV as a positive development. For the derivatives portion, we see greater China A50 Index futures trading volume with the Dec 2016 implementation of the Shenzhen-HK Connect.
- We forecast FY18 net profit growth of 11.6%, driven by volume expansion.
No change to our forecast.
- TP of SGD9.10 (pegged to 25x FY18 EPS) is maintained.
- Secondary valuation methodology using DCF yields a close SGD9.08 fair value.