Singapore Exchange - RHB Invest 2018-10-22: Strength In Derivatives Business; Attractive Yield


Singapore Exchange - Strength In Derivatives Business; Attractive Yield

  • Maintain BUY with SGD8.40 Target Price, 21% upside, pegged to 23x FY19F P/E.
  • SGX's 1QFY19 derivatives revenue surged 21% y-o-y, largely driven by China A50 Index Futures volume rising 40% y-o-y. However, SADV of SGD1.07bn was down 8% y-o-y, which resulted in weak equities revenue.
  • We are optimistic SADV will rise due to more active equities trading from global geo-political developments.
  • FY19F dividend yield of 4.7% adds to its attractiveness.

1QFY19 Results

  • SGX's 1QFY19 (Jun) net profit was SGD91m was up 1% y-o-y, representing 24% of our FY19F. We deem this as in line.

China A50 Index Futures – star contributor.

  • SGX's 1QFY19 derivatives revenue was up 21% y-o-y, and accounted for 47% revenue share. This came on 1QFY19 total derivatives traded volume rising 17% y-o-y to 54.2m contracts. China A50 Index Futures was the star performer (43% share), which recorded 40% y-o-y surge in traded volume.
  • We forecast FY19 derivatives average daily contract (DADC) of 821,000 vs 1QFY19’s 861,000.

SGX recorded 1QFY19 securities average daily value (SADV) of SGD1.07bn, -8% y-o-y.

  • We believe global developments such as further hikes in the Federal Funds Rate (FFR), and concerns about the trade war could lead to more switching of stocks within equity portfolios and drive trading volumes. Hence, we have assumed SADV pick-up in subsequent quarters and put our FY19F SADV at SGD1.27bn.
  • Also, SGX’s launch of the single stock daily leverage certificates in November is a catalyst to grow revenue.

Higher interim dividend.

  • The board of directors declared an interim dividend of SGD0.075 payable on 5 Nov. This is higher than the SGD0.05 in 1QFY18. SGX is on track to hit our target SGD0.32 dividend for FY19.

Key risks are global economic fluctuations and geopolitical developments.

  • Another area investors should be monitoring is the SGX- India Index Services and Products Ltd (IISL) arbitration process.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-10-22
SGX Stock Analyst Report BUY MAINTAIN BUY 8.400 SAME 8.400