SGX - RHB Invest 2017-07-28: FY17 SADV Increases Marginally YoY

SINGAPORE EXCHANGE LIMITED S68.SI

SGX - FY17 SADV Increases Marginally YoY

Singapore Exchange (SGX)’s FY17 net profit dipped 3% YoY to SGD340m. Excluding one-off items, core net profit would have been SGD347m.
Whilst its FY17 SADV of SGD1.12bn was marginally higher than FY16’s, its DADC declined 10% YoY – with the main reason for this being the plunge in China A50 Index futures.
A final DPU of SGD0.13 was declared, taking its FY17 DPU to SGD0.28 (unchanged YoY).

We maintain our FY18F SADV of SGD1.35bn, as we expect the improvement in the value to continue. We also believe the Dec 2016 implementation of the Shenzhen-Hong Kong Stock Connect scheme could improve trading contracts for the China A50 Index futures.
We maintain our FY18F-19F earnings and TP of SGD9.00 (19% upside). Maintain BUY.

FY17 (Jun) net profit was SGD340m, which is close to our forecast of SGD356m. If we exclude a one-off loss of SGD4m from the disposal of its investment in the Bombay Stock Exchange, and one-off acquisition costs of SGD3.7m for the Baltic Exchange, core net profit would have been SGD347m.
FY17 securities average daily value (SADV) of SGD1.12bn was marginally higher, compared with FY16’s SGD1.1bn. Its 4QFY17 SADV of SGD1.16bn was slightly higher than the FY17 average.
FY17 derivatives average daily contracts (DADC) decreased 10% YoY to 659,000, largely due to a 24% fall in FTSE China A50 Index futures traded YoY, to 64m contracts. This contributed to derivatives revenue dropping 7% YoY to SGD303m (or 38% revenue share).
It declared a final DPU of SDG0.13, in line with its policy. We expect FY18F DPU to be SGD0.334, which implies a yield of 4.4% - which is higher than the Singapore sovereign 10-year bond yield of 2.11%.

We maintain our FY18F SADV and DADC assumptions of SGD1.35bn and 794,000 respectively.
For the derivatives portion, we expect to see an increase in China A50 Index futures trading volume, thanks to the Dec 2016 implementation of the Shenzhen-Hong Kong Stock Connect. We also forecast FY18 net profit to grow 15% YoY, driven by volume expansion.
We make no change to our forecasted numbers and TP of SGD9.00 (pegged to 24x FY18F EPS).
Our secondary valuation methodology using DCF (WACC: 7.6%, TG: 1.6%) yields a close fair value of SGD8.79.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-07-28

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.000 Same 9.000