SINGAPORE EXCHANGE LIMITED
SGX
S68.SI
Singapore Exchange - Still a long road from here
- 4QFY16 net profit of S$76.8m in line; FY16 at 99%/98% of our/consensus forecast.
- Securities clearing and derivatives revenues fell short of expectations on lower margins, but made up for by lower expenses, which came in below guidance.
- Final DPS of 13 Scts declared, bringing total DPS to 28 Scts (86% payout ratio).
- Maintain Reduce. We cut our FY17-18 EPS by 2-4%, but our DDM-based target price edges up to S$7.24 as we roll our valuation forward to FY17.
Negative jaws in FY16, though trend is easing
- FY16 net profit came in at S$349m, flat yoy.
- Excluding an S$6m impairment charge for its investment in the Bombay Stock Exchange, net profit would have grown 2% yoy.
- Operating margin fell to 50% (FY15: 52%) as expenses (+9% yoy) outpaced revenue growth (+5% yoy), leading to negative jaws of 4%, albeit an improvement over FY15’s 6%.
- Management guides for expenses to rise at a slower pace of 3-5% yoy in FY17 to S$420m-430m, with the increase to come from new headcount and technology costs.
Derivatives and securities both saw margin pressure
- Securities clearing revenue (-3% yoy) and derivatives revenue (+10% yoy) fell below our expectations. Average securities clearing fee fell 3% yoy to 2.9bp on higher participation in the Market Maker and Liquidity Provider (MMLP) programme.
- Derivative fee per contract fell 7% yoy, likely due to higher mix of lower-margin contracts and continued competition in iron ore.
- We see securities ADVT remaining tepid at S$1.1bn in FY17 and derivatives volume growth slowing to 5% (FY16: 14%) as demand for A50 futures eases.
Total DPS unchanged at 28 Scts, payout ratio falls to 86%
- Total DPS of 28 Scts was unchanged from FY15. This is in line with our expectations, but below consensus’ 29.5 Scts.
- Amid near-term headwinds in revenue growth and cost pressures, we think DPS is likely to fall below consensus forecast of 32-37 Scts in FY17- 19.
- Payout ratio fell from 94% to 86%, sending a less optimistic signal on its outlook.
IPO pipeline and plans for Index Edge, but unlikely to make a dent
- CEO Loh Boon Chye highlighted Index Edge as a promising tool to diversify its revenue streams. It is working with financial institutions to provide bespoke index services, with the long-term goal of launching new ETFs, but it is still early days.
- For IPOs, pipeline could improve in 2H16 from:
- working with government agencies to help home-grown companies raise funds for overseas expansion, and
- foreign companies looking to raise capital here.
- However, we think listings could primarily be on the Catalist board.
Improving the derivatives suite with FX products and Baltic bid
- SGX plans to expand its derivatives suite by launching new FX futures, and remains in an exclusive bid for the Baltic Exchange.
- The attraction of the Baltic Exchange for SGX is its ownership of various freight indices, which will allow it to earn revenue each time the product clears on any market, in addition to the fees it currently earns for contracts cleared on SGX. It can also develop new routes and indices that will be relevant in Asia.
Maintain Reduce on continued near-term headwinds
- We maintain Reduce due to:
- derivatives margin pressure from competition in iron ore contracts,
- sustained weakness in securities ADVT from macro uncertainties,
- lower securities clearing rate with the MMLP programme, and
- limited growth in dividends, given earnings pressures.
- We trim our FY17-19 EPS, but our DDM target price edges up as we roll forward to FY17. Upside risk could come from faster derivative volume growth.
Jessalynn CHEN
CIMB Securities
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http://research.itradecimb.com/
2016-07-27
CIMB Securities
SGX Stock
Analyst Report
7.24
Up
7.16
