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Singapore Exchange - DBS Research 2016-01-21: 2Q16 results in line; valuations attractive

Singapore Exchange - DBS Research 2016-01-21: 2Q16 results in line; valuations attractive SINGAPORE EXCHANGE LIMITED SGX S68.SI 

Singapore Exchange - 2Q16 results in line; valuations attractive 

  • 2Q16 results in line; 5cts DPS was declared for the quarter 
  • Securities revenue down 10%; continued growth from Derivatives 
  • Outlook for the Securities and Derivatives markets remain challenging 
  • Upgrade to BUY on valuation basis; TP unchanged at S$7.80 


What’s New 


Highlights 

  • 2Q16 (FYE June) results in line; net profit came in at S$84m (-16% q-o-q, -3% y-o-y). 2Q is typically a slower quarter, given the year end lull period. 1H16 net profit rose 11% y-o-y to S$183m, on the back of a strong 1Q16, and accounts for 49% of our FY16F estimates. A higher quarterly DPS of 5Scts, up from 4Scts previously, was declared. 2Q16 revenue of S$195m was unchanged from last year but down 11% q-o-q. 
  • Securities revenue decreased 10% y-o-y and made up 24% (vs 26% in 2Q15) of total revenue, due to a decline in market activities. Derivatives revenue gained a marginal 1% y-o-y to S$77.6m, on higher interest earned on collateral balances, and accounts for 40% (39% in 2Q15) of total revenue. 
  • Total expenses of S$97m were up 4% y-o-y, due mainly to an increase in headcount costs and higher system maintenance and operating costs. 

Outlook 

  • Outlook for the Securities and Derivatives markets remain challenging. Volatility in the Chinese market, fear of a global recession, slumping oil prices and currency wars, continue to weigh on sentiment. 
  • SGX successfully launched a number of new initiatives in 2Q16, including SGX Bond Pro. The results of these initiatives would only be visible over the medium to long term in our view. 
  • The management has guided for lower operating expenses of between $415m-$425m for the year while technology-related capex is also lower at S$70m-75m. 

Upgrade to BUY, TP remains at S$7.80 

  • YTD, SGX’s share price has shed 14%, underperforming the 11% drop for the ST Index. 
  • Valuations on forward PE and P/B basis are currently below the -2SD level, which is very attractive. SGX is also trading at lower PE multiples relative to peers like Bursa Malaysia and HKEX. 
  • We upgrade our recommendation on SGX to BUY on valuation basis. 
  • We have tweaked our earnings forecast for FY16F up by 2.3%, after adjusting for lower expenses, in line with management’s guidance. 
  • We continue to see challenges persisting in the Securities market, as well as the Derivatives business. 
  • Target price remains at S$7.80, based on the dividend discount model, which implies 23x FY16F EPS. 
  • Dividend yield is attractive at 4.7% for FY16F.



Sue Lin Lim DBS Vickers | LING Lee Keng DBS Vickers | http://www.dbsvickers.com/ 2016-01-21
DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 7.80 Same 7.80


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