SGX - RHB Invest 2015-10-22: Derivatives Surge YoY But Soften Sequentially

SGX - RHB Invest 2015-10-22: Derivatives Surge YoY But Soften Sequentially SINGAPORE EXCHANGE LIMITED SGX S68.SI 

SGX - Derivatives Surge YoY But Soften Sequentially

  • 1QFY16 net profit of SGD99.3m (+28% YoY) was in line, representing 28% of our FY16 forecast. 
  • 1QFY16 SADV of SGD1.23bn rose 27% YoY, while derivatives average daily contracts traded surged 82% YoY to 862,000. 
  • Maintain BUY with an unchanged TP of SGD8.13, pegged to 23x FY17 P/E. 
  • While our TP is only 8% higher than current traded price, investors get an additional 4% dividend yield. 

 Derivatives remain a star performer. 

  • 1QFY16 (Jun) derivatives average daily contracts amounted to 862,000, up 82% YoY. 53% of the derivatives contracts traded were China A50 Index futures contracts. While the average daily China A50 Index futures contracts volume has fallen 15% QoQ, YoY growth remained robust at 159%. 
  • As we see sequentially softer volumes for China A50 Index futures, we assume lower FY16 and FY17 derivatives average daily contracts at 754,000 and 782,000 respectively. 

 Securities market turnover is unexciting. 

  • 1QFY16 securities market average daily value (SADV) of SGD1.23bn was 27% higher YoY, but only up a marginal 3% QoQ. 
  • We maintain our assumption of FY16 and FY17 SADV of SGD1.17bn and SGD1.27bn respectively. 

 Operating expenses up SGD20m or 25% YoY. 

  • Excluding Energy Market Company (EMC), expenses would have risen 18% or SGD15m. Another SGD8m rise was due to higher royalties from derivatives volume growth – which could slow if derivatives trading volume softens. 

 Declares an interim DPS of 5 cents (1QFY15: 4 cents). 

  • Singapore Exchange’s (SGX) current policy is for a base quarterly DPS of 5 cents, and an annual payout ratio of not less than 80%. 

 Limited share price downside risk, but good upside potential. 

  • Our TP is pegged to 23x FY17 P/E (lower than 5-year average of 25x). 
  • While the company traded around 14x P/E during the global financial crisis (2H08), we do not expect such severe P/E compression this time around. 
  • Another attraction is the forecast dividend yield of 4%.

Leng Seng Choon CFA RHB Research | http://www.rhbinvest.com.sg/ 2015-10-22
RHB Research SGX Stock Analyst Report BUY Maintain BUY 8.13 Same 8.13