Singapore Exchange (SGX SP) - Softer 3QFY17 earnings
- 3QFY17 earnings within expectations excluding loss from stake disposal of Bombay Stock Exchange.
- Cost discipline well maintained; expenses were 3% lower y-o-y.
- 5-Sct DPS base dividend declared.
- Maintain BUY with S$8.30 TP.
3QFY17 net profit of S$83m including losses booked for stake sale of BSE.
- SGX reported 3QFY17 net profit of S$83m (-7% y-o-y; -6% q-o-q). Excluding losses from the stake sale of Bombay Stock Exchange (BSE) of S$3.9m, 3Q17 earnings would have still been slightly lower y-o-y and q-o-q. Total revenues were slightly lower y-o-y but marginally higher on a q-o-q basis.
- Evidently, derivatives revenues continued to slide y-o-y due to softer trading volumes from the China A50 contracts. SGX’s 9M17 earnings were 72% of our fullyear forecasts.
- A dividend per share of 5 Scts was declared as expected.
Equities and Fixed Income segment flattish q-o-q.
- The Equities and Fixed Income segment, which comprises Issuer Services, Securities Trading & Clearing and Post Trade Services, were flattish q-o-q. Securities daily average traded value (SDAV) was only 1% higher y-o-y at S$1.24bn.
- Average clearing fees declined due to more lower-yielding structured warrants traded. An additional S$1.5m revenue was recognised from the Baltic Exchange during the quarter.
- Securities made up 27% of total revenue, up from 26% in 2Q FY2016.
- Derivatives revenue declined 9% y-o-y, accounting for 37% of total revenue for 3QFY17, vs 40% a year ago. However, average fee per contract rose to S$1.20 from S$1.15 y-o-y, primarily due to changes in the mix of derivatives contracts traded.
Expenses declined by 3% y-o-y from lower processing and royalties fees due to softer derivatives trading volume.
- Expenses have been rising sequentially q-o-q albeit lower compared to a year ago. SGX remains focused on cost discipline, and operating expenses for FY2017 are expected to be between S$405m and S$415m, possibly at the lower end of this range. There might be a slight increase in expenses in the upcoming 4QFY17 which are seasonal in nature.
- Other expenses are largely related to new hires, technology expenses and possibly higher processing and royalty fees (which could result in higher derivatives revenues).
Maintain forecasts and BUY call with TP of S$8.30.
- We made no changes to our earnings. We continue to expect a better trading environment on improving market activity and cyclical upturn in the Singapore economy.
- Our target price of S$8.30 is based on the dividend discount model. Dividend yield of about 4% for FY2017 is attractive.
- Maintain BUY.