Singapore Exchange Limited (SGX) - RHB Invest 2018-04-23: Derivatives Drive Earnings

SINGAPORE EXCHANGE LIMITED S68.SI

SGX - Derivatives Drive Earnings

Singapore Exchange (SGX)’s 3QFY18 net profit was up 21% y-o-y, while its SADV for the period stood at SGD1.45bn (+17% y-o-y).
Its derivatives revenue surged by a strong 20% y-o-y and contributed 41% of total revenue – with FTSE China A50 Index futures recording a 40% y-o-y jump.
Our FY18F SADV remains at SGD1.20bn, while we forecast a stronger FY19 SADV of SGD1.39bn, on the back of bullish investment sentiment.

The strong showing for derivatives could continue, with new SGX India products to be launched in June.
We keep our FY18 and FY19 earnings forecasts and Target Price of SGD9.00 (19% upside), which is pegged to 24x FY19F P/E (1SD above its 3-year mean of 22.2x). Maintain BUY.

Singapore Exchange (SGX) reported a 3QFY18 (Jun) net profit of SGD100m (+21% y-o-y). Meanwhile, its 9MFY18 net profit of SGD280m represents 75% of our FY18 forecast of SGD373m. 3QFY18 revenue rose by a respectable 10% y-o-y, even as operating expenses increased by a milder 5% y-o-y. Its PBT margin of 54.3% was 4.2 ppts wider y-o-y.
3QFY18 securities average daily value (SADV) of SGD1.45bn was up 17% higher y-o-y (or 27% q-o-q). The average equities clearing fee was 2.87bps, reflecting a decrease from 3QFY17’s 2.93bps – due to a higher proportion of trading by market makers and liquidity providers. Consequently, securities trading and clearing fees rose by a milder 12% y-o-y (vs the SADV improvement).
Management expects more IPO listings in FY18 compared to FY17, which could help drive trading volumes.

We forecast a FY18 net profit growth of 9.7% y-o-y. We use a target 24x FY19F P/E (1SD above the 3-year mean of 22.2x), which yields a Target Price of SGD9.00. Our Target Price is supported by a DCF-derived fair value of SGD8.85.
Our sensitivity analysis shows that, even if FY19F SADV was lower by 20% at SGD1.11bn, the stock should trade at around SGD7.84. The company also offers an attractive FY18F dividend yield of 4.1% (FY17: 3.7%), which is higher than the Singapore sovereign 10-year bond yield of 2.37%. Management declared an unchanged interim dividend of SGD0.05 per share.
Maintain BUY.
The key risks to our recommendation include global economic and geo-political developments.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2018-04-23

SGX Stock Analyst Report BUY Maintain BUY 9.000 Same 9.000