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

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.

3QFY18 results. 

  • 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.

SGX remains attractive. 

  • 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 | 2018-04-23
SGX Stock Analyst Report BUY Maintain BUY 9.000 Same 9.000