Singapore Exchange - CIMB Research 2018-04-20: 3QFY18 Stellar Quarter

SINGAPORE EXCHANGE LIMITED S68.SI

Singapore Exchange - 3QFY18 Stellar Quarter

SGX’s 3QFY18 was its best performing quarter in the last 10 years, led by higher SDAV (+17% y-o-y) and derivatives volume (+34% y-o-y).
3QFY18 core net profit of S$100m was in line with our/consensus expectations, registering y-o-y and q-o-q growth of 15.5% and 13.7%, respectively.
We expect market volatility to remain as a near-term driver for SGX, while its mediumterm prospects could benefit from new products and initiatives.

Upgrade from Hold to ADD with a higher S$8.20 Target Price as we see Nifty overhang subsiding and market activity improving. It also offers 3-4% forecasted dividend yield.

SGX reported 3QFY18 core net profit of S$100m (+15.5% y-o-y, +13.7% q-o-q); 9MFY18 results formed 77%/75% of our/consensus full-year numbers. It also recorded the highest quarterly revenue of S$222m since listing, thanks to strong growth in both securities and derivatives trading.
Despite higher staff costs (11.2% y-o-y), we saw better 3Q18 operating margin (53% vs. 2Q18’s 50% and 3Q17’s 51%).
Interim DPS was unchanged at 5 Scts.

SGX’s persistent efforts to reach out to investors and showcase its companies seem to be paying off, as its securities daily average traded value (SDAV) surged to S$1.45bn (2Q18: S$1.14bn, 3Q17: S$1.24bn), helped by increased participation from market makers and liquidity providers (MM/LPs).
Average clearing fee hence fell from 2.80bp to 2.71bp. More equity listings and funds raised (S$1.8bn vs. S$0.3bn a year ago) contributed to the 8% y-o-y improvement in issuer services.

In 3QFY18, we saw growth across all key equity index contracts (commodities volume down due to lower volatility), resulting in 20% higher derivatives revenue.
Apart from increasing YTD bond listings, gains in volume market share for FX futures (+17% for USD/CNH, +5% for INR/USD) also underscore SGX’s efforts to build on its multi-asset offering, and retain its leading market position as a derivatives exchange.

SGX announced earlier its plans to launch new India equity derivative products in Jun 18, based on a reference value methodology using publicly available prices of futures contracts.
Its constant engagement and consultation with existing market participants on the successor products give us confidence that there should be a seamless transition and minimal earnings disruption upon the licensing expiry in Aug 18.

As we raise our FY18-20F EPS by 2.2-4.5% on the back of higher SDAV and derivatives contracts’ assumptions, our target price increases to S$8.20 (still pegged to 24x FY19F P/E, its historical mean).
SGX’s share price has retraced from its peak of S$8.49 after news of the licensing suspension. We now upgrade from Hold to ADD, as we see earnings improvement from higher market activity, and rollout of new initiatives and products.
The stock also offers FY18-20F dividend yields of 3.8-4.1%.

Greater traction in new products and synergistic M&As are key potential catalysts; downside risks could stem from rising competition from regional exchanges, and the market returning to risk-off mode.

NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2018-04-20

SGX Stock Analyst Report ADD Upgrade HOLD 8.20 Up 7.850