Singapore Exchange Limited - Phillip Securities 2018-04-24: Thank You Volatility

Singapore Exchange Limited - Phillip Securities 2018-04-24: Thank You Volatility SINGAPORE EXCHANGE LIMITED S68.SI

Singapore Exchange Limited - Thank You Volatility


  • SGX's 3Q18 PATMI beat our estimates by 11%. Revenue of S$222mn is the highest since listing. It was securities revenue that exceeded our expectations.
  • Derivatives business drove revenue growth with volumes surging by 34% y-o-y. FX derivatives enjoyed a stellar 89% spike in volumes.
  • SGX will launch new Indian equity derivative products by June18, linked to a so-called “publicly available reference price”.
  • Maintain BUY. Our target price raised to S$9.20 (previously S$8.89), in-line with the increase in our FY18e earnings by 4%.

The Positives

+ Derivatives the growth driver.

  • Derivatives revenue rose 20% y-o-y stemming from the 34% surge in volumes. However, average fee per contract was down 11% y-o-y to S$1.07 due to change in product mix. 
  • Improvement in volumes came largely from China A50, Nikkei 225 and FX futures products.

+ Operating leverage intact.

  • Revenue rose close to S$17mn q-o-q and almost 70% (or S$12mn) flowed to net profits. SGX
    has managed to keep operating expenses relatively stable despite the improvement in revenue. 

+ Higher number of listing expected.

  • SGX mentioned FY18 equity listings would likely exceed FY17. This implies at least another 5 more IPOs in 4QFY18. Funds raised are up 6-fold YTD.

The Negatives

- No resolution with Indian exchanges.

  • Recall that in Feb18, Indian exchanges announced they would stop licensing their index or provide data to foreign exchanges. This was to affect the continuity of SGX Nifty Fifty products. SGX recently stated it would list new India equity derivative products in June18. 
  • Unclear to us how these new products will be “seamlessly traded” and accepted by market participants. Also, there is the worry if such product could elicit some response from the Indian exchanges.

Investment Actions

  • We maintain our BUY recommendation. The return of volatility, continuous stream of new products and operating leverage will be supportive of earnings growth. 
  • Valuations are attractive in view of the 35% ROEs, 4% dividend yield and momentum in earnings.

Jeremy Teong Phillip Securities | https://www.stocksbnb.com/ 2018-04-24
SGX Stock Analyst Report BUY Maintain BUY 9.20 Up 8.890