SINGAPORE EXCHANGE LIMITED
SGX
S68.SI
SGX: Still challenging
- Revenue grew 3%
- But expenses rose 7%
- Raised FV to S$7.40
Below expectations
- 3Q Singapore Exchange (SGX) posted a 1% YoY rise in 3QFY16 net profits to S$89.2m, below Bloomberg consensus expectations of S$94.25m.
- Total revenue grew 3% to S$205.8m.
- Securities Trading and Clearing revenue rose 4% to S$54.8m, forming 27% of total revenue.
- Derivatives revenue rose 3% to S$82.2m, and accounted for 40% of total revenue.
- Due to a decline in new bond listings and a drop in corporate actions, Issuer Services revenue fell 5% to S$18.7m, or 9% of total revenue.
- A dividend of 5 cents was declared and payable on 6 May 2016.
- Management expects FY 2016 operating expenses to come in at the lower end of its guidance of S$415m-S$425m (same as last quarter) and with technology-related capital expenses at S$70m-S$75m.
Re-emphasizing cost cutting
- Against a challenging global market condition, the 3Q performance was deemed to be fairly healthy even though it was below market expectations.
- On a YoY basis, revenue improved for almost all units, except issuer service. However, this was mitigated by higher expenses, which rose 7% YoY.
- The key increases came from headcount and new systems.
- With increased competition and continued volatile market conditions, cost management appears to be a key focus.
Downgrade to HOLD
- As the 3Q results were largely in line with our expectations, we are keeping our FY16 net earnings of S$360m. We are also retaining our FY17 net earnings estimate of S$382.5m.
- While the local benchmark index has improved, lifting valuations from recent lows, trading activity remained relatively lackluster.
- With improving valuations for SGX and its listed regional peers, we are raising our fair value estimate from S$7.06 (21x FY16 earnings) to S$7.40 (22x blended earnings).
- As the stock has already gained some 21% since our last report and with total return of less than 10%, we downgrade SGX to a HOLD.
Carmen Lee
OCBC Securities
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http://www.ocbcresearch.com/
2016-04-21
OCBC Securities
SGX Stock
Analyst Report
7.40
Up
7.06
