Singapore Exchange - CGS-CIMB Research 2021-01-23: Recent Acquisitions Bearing Fruit


Singapore Exchange - Recent Acquisitions Bearing Fruit

  • SGX's 1HFY21 net profit of S$239.8m (-7.3% h-o-h, +12.4% y-o-y) was a beat. The earnings boost came from BidFX, contributing ~S$16m in this period.
  • Maintaining over ~80% of offshore open interest of FTSE Taiwan futures contracts marks successful migration from predecessor’s product offering.
  • Reiterate ADD with higher target price of S$11.61 on sustained trading volumes in FY21F and the promise of SGX further narrowing the MSCI earnings gap.

SGX's 1HFY21 results beat; reaping fruits of recent acquisitions

  • SGX (SGX:S68) reported 1HFY21 net profit of S$239.8m (-7.3% h-o-h, +12.4% y-o-y) which was ahead at 58%/54% of our/consensus full-year forecasts. Topline improved 8.8% y-o-y as all 3 segments of equities (+3%), FICC (+17%) and DCI (+35%) improved compared to a year ago.
  • Notably, Scientific Beta (SB) and BidFX contributed revenues of S$34m in this period. Adjusting for non-recurring expenses, opex rose +9% y-o-y, mainly due to higher staff costs owing to SB and BidFX, as well as heftier royalties expenses.

FICC boost came from BidFX

  • Fixed income, currencies and commodities (FICC) was the key earnings driver this half-year, rising 17% y-o-y (or S$14.5m), mainly due to the consolidation of BidFX (+c.S$16m).
  • While commodities futures volumes rose 5% to 12m contracts in 1HFY21, this was offset by an 8% y-o-y decline in currency futures volumes to 11.8m contracts from reduced hedging needs by importers (due to appreciation of CNH) and shortened trading hours in India amid COVID-19 movement restriction orders (INR/USD volumes -13% y-o-y).

Successful migration to SGX FTSE Taiwan futures

  • In SGX's cash equities space, a combination of sustained securities average traded value (SDAV) of S$1.3bn in 1HFY21 (FY20: S$1.3bn) on higher turnover velocity (49% vs 34% in 1HFY20) drove clearing fees higher. In contrast, derivatives revenue was weaker due to lower clearing fees from a change in the mix of products (higher volumes of China A50 contracts) and (lower) introductory fees for the SGX FTSE Asia expansion suite, which saw derivatives average fee per contract dip 15% q-o-q to S$1.16.
  • As the fee holiday for clients migrating to FTSE Taiwan from (MSCI Taiwan) ended in Dec 20, we expect average fees to progressively improve in 2HFY21, underpinned by encouraging open interest market share of SGX FTSE Taiwan futures contracts at over 80%.

Reiterate ADD with higher target price of S$11.61

  • We think that SGX’s successful migration of its customer base to its FTSE Taiwan futures offering offers promise of executing other initiatives in narrowing the earnings gap left by its predecessor’s licence expiry.
  • Further, we expect equity turnover to sustain over FY21F given the low rate environment and macro uncertainty, supporting hedging demand.
  • See SGX Share Price; SGX Target Price; SGX Analyst Reports; SGX Dividend History; SGX Announcements; SGX Latest News.
  • We raise SGX's FY21-23F earnings forecasts by ~17-19% on higher trading volumes and contributions from SB and BidFX. We raise SGX's target price to S$10.72 (pegged to 25x FY22F P/E, 0.5s.d. above the long term mean).
  • Downside risks: MSCI A-share futures launch by HKEX.

Andrea CHOONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-23
SGX Stock Analyst Report ADD MAINTAIN ADD 11.61 UP 9.000