SINGAPORE EXCHANGE LIMITED
S68.SI
Singapore Exchange Limited - Finding the right cost structure
- SGX 4QFY06/16 PATMI of S$76.8m was in line with our expectation of S$87mn (exclude impairment of S$6mn for investment in Bombay stock exchange).
- FY06/16 Derivatives volume was 10% higher than FY06/15 supported by higher participation from market makers.
- Final dividend of base rate 5 cents per share and a variable rate of 8 cents per share proposed. FY06/16 dividend per share is 28 cents, similar to FY06/15.
- Maintain “Accumulate” with lower TP of S$7.99 (S$8.62 previously).
Financial highlights and how we view it
Equities and Fixed income business yet to find the optimal cost structure.
- Full year revenue for this segment was up 1% yoy but was offset primarily by a decline in Listing revenue (-10% yoy) because of decline in the number of bonds listing and a decline in average securities clearing fee.
- Securities clearing revenue make up about 19.4% of total FY06/16 revenue. However, we do not see top line growth being driven by this segment because of downward pressure on average clearing fees.
- Bottom line growth would come from finding the optimal cost structure that commensurate with the revenue earned.
Derivatives volume ended the year strong though 4Q16 was weak.
- FY06/16 Derivatives revenue grew 10% yoy. But average fee per contract trended lower to S$1.19 (FY15: S$1.28) because of revision of pricing and incentives for iron ore contracts as a result of increased competition.
- Total volume increased 14% yoy to 183mn contracts, contributed by China A50 Index Futures, Nikkei 225 Index Futures and Nifty 50 Index Futures.
Market Data & Connectivity brings a new angle of potential growth.
- Revenue is up 7% yoy to S$87mn primarily due to increased revenues from Derivatives market data feed, index services and colocation services.
- By providing index services, SGX is able to better engage Financial institutions, banks and funds that are looking to create bespoke investment products build on a combination of indices.
Investment Actions
- We view that SGX is progressing well in pursuing a multi asset strategy to engage a wider audience. However, negative impact from higher operating may continue to impact earnings in near term.
- Maintain “Accumulate” with lower TP of S$7.99.
Jeremy Teong
Phillip Securities
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http://www.poems.com.sg/
2016-07-28
Phillip Securities
SGX Stock
Analyst Report
7.99
Down
8.62
