Singapore Exchange - DBS Research 2017-01-20: Net profit gained 5% y-o-y on increased market activity

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SINGAPORE EXCHANGE LIMITED S68.SI

Singapore Exchange - Net profit gained 5% y-o-y on increased market activity

• Equities and Fixed Income did well but revenue for Derivatives eased slightly.
• Expenses largely unchanged; guiding for lower expenses ahead.
• Maintain forecasts and BUY call with TP of S$8.30.

2Q FY17 net profit of S$88m, 5% higher y-o-y, in line 

• SGX reported 2Q FY17 net profit of S$88m (+5% y-o-y; +6% q-o-q) on revenue of S$200m (+3% y-o-y; +5% q-oq).
• 2Q net profit accounted for 25% of our full year forecasts while revenue made up 24%. For 1H FY17 net profit and revenue accounted for 49% and 47% of our full year forecasts, respectively, in line with our expectations. We are expecting a better 2HFY17 on improving market activity and cyclical upturn in the Singapore economy. 
• A dividend per share of 5 Scts was declared, in line.

Equities and Fixed Income did well but revenue for Derivatives down 3% y-o-y 

• The Equities and Fixed Income segment, which comprises Issuer Services, Securities Trading & Clearing and Post Trade Services did well, with the key Securities Trading & Clearing unit registering a 12% y-o-y increase in revenue to S$52.1m. Securities daily average traded value (SDAV) increased 17% to S$1.09 bn (S$0.93 bn in 2QFY16). Total traded value rose 17% to S$69.8 bn. The higher level of trading activity was due to an upsurge in market activity following the U.S. elections in November. Securities made up 26% of total revenue, up from 24% in 2Q FY2016.
• Derivatives revenue declined 3% to S$75m, accounting for 38% of total revenue for 2Q FY17, vs 40% a year ago.
• Average fee per contract was also down to S$1.16, from S$1.28 in 2Q FY16, primarily due to changes in the mix of Derivatives contracts traded.

Expenses largely unchanged; guiding for lower expenses ahead 

• Expenses at S$97.2m were largely unchanged from last year.
• Excluding one-off costs of acquiring the Baltic Exchange, expenses would have been 4% lower y-o-y at S$93.6m. SGX remains focused on cost discipline, and operating expenses for FY2017 are now expected to be between S$405m and S$415m. This is lower than the previously announced range of between S$420m and S$430m.

Maintain forecasts and BUY call with TP of S$8.30 

• We have adjusted the expenses for FY2017 down slightly, in line with guidance, but the positive impact was offset by the slightly lower average fee per Derivative contract. 
• Overall, no change in earnings. 
• Our target price of S$8.30 is based on the dividend discount model. 
• Dividend yield of about 4% for FY2017 is attractive. Maintain BUY.

Lee Keng LING DBS Vickers | Sue Lin LIM DBS Vickers | http://www.dbsvickers.com/ 2017-01-20

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 8.300 Same 8.300