Singapore Exchange - RHB Invest 2020-01-24: 2QFY20 Y-o-y Strength From Fixed Income, Currencies & Commodities

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SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Exchange - 2QFY20 Y-o-y Strength From Fixed Income, Currencies & Commodities

• Maintain NEUTRAL and Target Price pegged to 23x FY21F P/E, 0% upside.
• Singapore Exchange (SGX:S68)'s 2QFY20 net profit grew 3% y-o-y to SGD99m. 1HFY20 net profit of SGD213m accounted for 54% and 51% of our and consensus FY20F – which we deem as in line. 2QFY20 SADV of SGD1.06bn was unchanged from 1QFY20.

2QFY20 equity derivatives volume contracted 18% y-o-y

• Singapore Exchange's 2QFY20 (Jun) equity derivatives volume contracted 18% y-o-y to 41.3m contracts, largely due to a 29% collapse for the China A50 Index futures – 44% share of total equity derivatives volume. Equity derivatives revenue fell 5% y-o-y and accounted for 34% share of overall revenue. See SGX Announcements.

Securities average daily value (SADV) for 2QFY20 was SGD1.06bn

• Securities average daily value (SADV) for 2QFY20 was SGD1.06bn, up from 2QFY19’s SGD0.98bn. This contributed to cash equities revenue rising 5% y-o-y to SGD86m, and accounting for 37% share of overall revenue. We maintain our assumption of FY20F SADV of SGD1.08bn.

Fixed income, currencies and commodities (FICC) 2QFY20 revenue surged 20% y-o-y

• Fixed income, currencies and commodities (FICC) 2QFY20 revenue surged 20% y-o-y, and accounted for 17% share of overall revenue. Currencies and commodities derivatives revenue rose 21% y-o-y and has a 15% revenue share. We believe market volatility will keep volumes firm for FICC.

Respectable dividend yield.

• We forecast FY20 DPS of 31 SG cents, based on an 85% payout ratio – 2QFY20 dividend was at 7.5 SG cents. FY20F dividend yield is a respectable 3.6%. See SGX Dividend History.

Strong balance sheet.

• Singapore Exchange remains in a net cash position, with a monopoly over trading of Singapore-listed equities.

Our TP is pegged to 23x FY21F EPS, ie its 4-year mean.

• Given Singapore Exchange’s 10% share price rise over the past six months, we believe the positives (particularly for the FICC business) are largely priced in – and maintain our NEUTRAL recommendation. See SGX Share Price; SGX Target Price.
• Key risks are global economic fluctuations and geopolitical developments.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-01-24

SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 8.800 SAME 8.800