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
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LING Lee Keng
DBS Vickers
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http://www.dbsvickers.com/
2016-01-21
DBS Vickers
SGX Stock
Analyst Report
7.80
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