Singapore Exchange - CGS-CIMB Research 2020-04-24: Reaching New Highs


Singapore Exchange - Reaching New Highs

  • SGX's 3QFY6/20F net profit rose to S$137.5m (+38.0% y-o-y, +38.8% q-o-q), due to robust growth in SDAV (S$1.61bn) and derivatives volumes (76.4m).
  • We expect market volatility to persist in the near-term, with rising interest and funds to be deployed into the market. SGX is still our more defensive pick.
  • Maintain ADD with a higher Target Price of S$10.50, now pegged to 24.4x FY21F P/E, 0.5 s.d. above its 10-year historical mean and c.3% dividend yield.

SGX's 1st new high: 3QFY20 record quarter

  • SGX (SGX:S68) reported S$296m revenue and S$138m net profit in 3QFY20; Scientific Beta contributed S$5.9m revenue, S$0.9m net profit and S$234m goodwill. Opex was higher at S$131m (2Q20: S$111m, 3Q19: S$127m) on the back of volume-driven processing fees, Scientific Beta costs, and the S$5m Covid-19 care package, resulting in a higher FY20F expense guidance of S$485m-495m. But 3Q20 cost-to-income ratio fell to 45% (3Q19: 48%) and also saw positive jaw ratio of 7%.
  • Overall 9MFY20 net profit of S$350.7m met Bloomberg consensus estimate but was ahead of ours at 83% of our full-year forecast.
  • SGX's interim DPS of 7.5Scts was unchanged y-o-y; associate loss widened from S$0.8m in 2Q to S$2.4m, mainly from early-stage companies it has invested in earlier. See SGX Dividend History.

SGX's 2nd new high: 3QFY20 securities ADVT of S$1.61bn

  • A confluence of Covid-19, oil price volatility, government measures and portfolio repositioning had underpinned the strong surge in 3QFY20 securities daily average value (SDAV) to S$1.61bn (+51.1% q-o-q, +57.4% y-o-y), as well as lifted the cash equities revenue from S$80.4m to S$111.3m.
  • Overall turnover velocity also improved from 3QFY19’s 36% to 57%; we think this figure is likely to remain elevated due to market events and new retail interest/inflows.

SGX's 3rd new high: 3QFY20 derivatives volumes of 76.4m

  • Global uncertainty drove derivatives contracts 47.2% q-o-q and 26.9% y-o-y higher to 76.4m, with broad-based growth across equity index (namely Nikkei 225, Nifty and China A50), commodities and FX derivatives.
  • We saw increased international participation which led to stronger T+1 session volumes (20% of derivatives); total open interest was higher at 6.3m as at end-Mar, leading to higher treasury income. But this was offset by lower average contract fees in 3QFY20 as a result of tiered rebates and revenue mix changes. While Apr volumes had been slow, we expect a pick-up in subsequent months.

Reiterate ADD, with a higher Target Price of S$10.50

  • We raise our FY20-22F EPS forecasts by 0.3-8.0% to account for higher SDAV and derivatives volumes; hence our target price rises to S$10.50, now pegged to 0.5 s.d. above its long-term mean of 24.4x FY21F P/E (previously 22.5x). Maintain Add.
  • See SGX Share Price; SGX Target Price; SGX Analyst Reports; SGX Dividend History; SGX Announcements; SGX Latest News.
  • Potential re-rating catalysts are better-than-expected market volumes and faster asset under management (AUM) growth at Scientific Beta.
  • Downside risks could come from market risk-off, higher-than-expected costs, and MSCI A-share futures launch by HKEx.

NGOH Yi Sin CGS-CIMB Research | 2020-04-24
SGX Stock Analyst Report ADD MAINTAIN ADD 10.50 UP 9.400