Derivatives outlook is good
Earnings in line with consensus
Derivatives is the star performer
Upped FV to S$8.16
Results were in line with expectations
- Singapore Exchange (SGX) posted a 24% YoY or a 9% QoQ increase in 4QFY15 net earnings to S$96.2m, resulting in an 8.8% increase in FY15 earnings to S$348.6m.
- The star performer was Derivatives, which generated a 42% rise in FY15 revenue of S$295.7m, far surpassing the S$209.3m posted by Securities.
- The 8% decline for the latter was due to a 4% drop in securities daily average traded value (SDAV) and a 4% drop in total traded value.
- Derivatives business posted a record year buoyed by higher volumes for several products including Iron Ores (+258%) and the SGX FTSE China A50 Index futures (+220%).
Volatility and uncertainty
- Management expects the “uncertain and volatile” global economy to “pose challenges” to its Securities market, but this should be mitigated by higher demand for its Derivatives products.
- Expenses rose 20% in FY15 and are likely to remain high due to investment in staff and technology.
- As a result of this, management is guiding for operating expenses of S$425m to S$435m in FY16 and for technology-related capital expenditure to be in the range of S$75m to S$80m.
Derivatives to drive growth
- The recent sell-down in the Chinese market has resulted in volatility and this could benefit its Derivatives business, which is likely to continue to outpace the contribution from its Securities market.
- For the Securities business, the IPO market is quiet and there was also a marked slowdown in corporate deals.
- While there are initiatives to boost retail interest in equities, these are unlikely to yield any strong results for the near to medium term.
Raised Fc from S$7.95 to S$8.16; maintain HOLD
- Management is proposing to raise the base dividend payout per quarter from the current 4 cents to 5 cents, to even out its dividend payout per quarter and to remove the lumpy final quarter payout.
- As we roll into FY16, and maintaining the same 23x valuations, we raised our fair value estimate from S$7.95 to S$8.16.
- Maintain HOLD.
(Carmen Lee)
Source: http://www.ocbcresearch.com/
