Singapore Exchange Limited - Phillip Securities 2016-04-21: Resumption of a strong quarter despite market uncertainty

Singapore Exchange Limited - Phillip Securities 2016-04-21: Resumption of a strong quarter despite market uncertainty SINGAPORE EXCHANGE LIMITED S68.SI 

Singapore Exchange Limited - Resumption of a strong quarter despite market uncertainty 


  • SGX 3QFY06/16 PATMI of S$89m was in line with our expectation of S$86mn 
  • Securities and derivatives market resumed a strong quarter after a weak 2QFY06/16 caused by heightened uncertainty and volatility 
  • As expected, interim dividend of 5 cents per share proposed, 1 cent higher from prior year 
  • Maintain “Accumulate” with higher TP of S$8.62 (S$8.28 previously) 

How do we view this? 

Securities business remains steady. 

  • Securities revenue grew 4% yoy with SDAV improving by 5% yoy. 
  • SGX announced in late-March that its first Hong Kong (Quam Securities) and Taiwan (Global Link) member brokers can begin to trade SGX-listed securities. 
  • We believe this could benefit its securities business. 

Derivatives volume regained most of the lost ground in 2QFY06/16. 

  • Revenue grew 3% yoy, however average yield per contract was lower at S$1.15 (3Q15: S$1.39) because of revision of pricing and incentives for iron ore contracts as a result of increased competition. 
  • Total volumes increased 24% yoy to 48.7mn contracts, contributed by China A50 Index Futures, Nikkei 225 Index Futures and iron ore contracts. 
  • We expect stronger performance ahead as additional Derivatives Trading Members (joined in March-16) should help expand the sales channels for Equity Index Futures and Iron Ore futures. They are Hong Kong-based Wing Fung Futures Limited and ZZFS International (H.K.) Limited and Taiwan-based JihSun Futures Co.,Ltd. ZZFS International is a subsidiary of CITIC Futures Co.,Ltd., China’s largest futures brokerage firm. 

Vertical Integration and Multi Asset Strategy. 

  • SGX continues to build capabilities that would enhance customer stickiness. 
  • Through infrastructure capabilities such as colocation services and a wide variety of derivatives and securities offered, SGX would be seen as a one stop shop for market participants. 
  • And by building these capabilities early, SGX should be more prepared to meet stiffer competition. 

Investment Actions 

  • We have raised our FY06/15 and FY06/16 net profit estimates by 4 and 10%, respectively to factor in higher SDAV and increased pace of DDAV growth. 
  • Maintain “Accumulate” with higher TP of S$8.62.

Jeremy Teong Phillip Securities | http://www.poems.com.sg/ 2016-04-21
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 8.62 Up 8.28