SGX - OCBC Investment 2018-10-22: Derivatives Outpaced Equity

SINGAPORE EXCHANGE LIMITED (SGX:S68) | SGinvestors.io SINGAPORE EXCHANGE LIMITED (SGX:S68)

SGX - Derivatives Outpaced Equity

  • SGX's 1Q19 slightly below consensus.
  • Derivatives was the star in 1Q.
  • Fair value of S$7.96.



1Q19 slightly below market expectations

  • Singapore Exchange (SGX) posted 1QFY19 net earnings of S$91.1m, flat y-o-y and +8.8% q-o-q, but slightly below market consensus of S$92.5m based on Bloomberg consensus. Equities and Fixed Income accounted for 41.4% of 1Q revenue, while Derivatives accounted for 46.8% of revenue (versus only 39.4% in 1QFY18).
  • With record revenue, its Derivatives business is now the biggest contributor to revenue. Derivatives Revenue rose 14.3% q-o-q and 21.3% y-o-y to S$97.7m. Equities and Fixed Income, which used to be the main revenue contributor, saw revenue falling 14.9% q-o-q and 13.3% y-o-y to S$86.4m.
  • A 1Q dividend of 7.5 cents was declared.
  • For the full year, management maintained its guidance of operating expenses of S$445m-$455m with the same technology-related expenses of S$60m-$65m.



Volatility has spiked; 2Q could be weaker

  • With the current on-going trade war and the expected spillover effect on slower economy growth, risk has intensified and market volatility has spiked. Together with the traditional quieter period heading into the Oct-Dec period, we expect SGX’s 2QFY19 performance to be affected due to a lack of corporate activities and lower trading activities.
  • In this environment, we expect its equity revenue to remain under pressure, although its derivatives revenue could potentially benefit from heightened volatility.


Sharp share price correction; value is emerging

  • With management’s commitment to pay out full year dividend of 30 cents (or a quarterly dividend of 7.5 cents per quarter versus quarterly of 5 cents previously) and at the share price of S$6.93, dividend yield is 4.3%.
  • In addition, the stock is currently trading at 1SD below its 10-year forward PER band. 
  • Based on the 10-year median of 22x and using FY19/20 earnings projections, the fair value estimate for the stock is S$7.96.





Carmen Lee OCBC Investment Research | https://www.iocbc.com/ 2018-10-22
SGX Stock Analyst Report BUY MAINTAIN BUY 7.96 DOWN 8.320



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