Singapore Exchange - DBS Research 2021-01-25: 1HFY21 Ahead Of Expectations; Valuations Are Getting Rich

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SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Exchange - 1HFY21 Ahead Of Expectations; Valuations Are Getting Rich

• Singapore Exchange (SGX:S68)'s 1HFY21 adjusted net profit improved 7% y-o-y to S$228m.
• Continue to pursue multi-asset strategy.
• Quarterly dividend of 8.0 cents declared for 1HFY21.
• Maintain HOLD, target price S$10.20.

SGX's 1HFY21 adjusted net profit of S$228m improved +7% y-o-y.

• SGX's 1HFY21 net profit was driven by strong revenue growth (S$521m, +9% y-o-y). Revenue growth continues to be driven by volatility in global markets and increased participation from customers.
• Adjusted net profit of S$228m improved by a slower 7% y-o-y, due to higher adjusted expenses of S$242m (+9% y-o-y) from higher staff costs from newly acquired Scientific Beta and BidFX.

Strong performance across asset classes.

• SGX's cash equities trading and clearing revenue improved 23% y-o-y to S$111m as total traded value increased 19% y-o-y with higher average clearing fees of 2.71bps. Derivatives revenues came off from a high momentum in the previous half, as 36% y-o-y improvement in currencies and commodities derivatives revenues to S$71m was partially offset by
  1. 5% y-o-y decline in equities derivatives trading revenue to S$110m due to 15% q-o-q decline in average fee per contract arising from offering of an introductory fee to the new SGX FTSE Asian expansion suite during the last quarter and
  2. lower treasury income on lower interest rates.
• DCI revenues improved 35% y-o-y to S$71m, in part due to Scientific Beta and BidFX’s S$34m contribution post acquisition.

Smooth FTSE Taiwan offering.

• SGX launched the FTSE Taiwan contract in July 2020 to replace MSCI Taiwan contract and was focused on migrating volumes from MSCI Taiwan. Approximately 90-95% volumes have since moved to FTSE Taiwan contracts. Trading of the MSCI Taiwan contract was suspended on 1 Nov 2020, ahead of the expiry in Feb 2021.
• Open interest and volume market share of the contracts remain > 80% and > 90% respectively and SGX continues to expect the average fee per contract post the offering of introductory fee to improve as the FTSE contracts run-in subsequent quarters.

New products and other updates.

• SGX looks towards introducing more products, including the launch of its first four ESG Index futures contract at end January. Scientific Beta also continues to develop sustainability solutions for its customers and leverage on SGX’s network to cross-sell.
• Further, SGX has invested a 10% stake to set up a digital exchange with DBS (SGX:D05), and newly partnered Temasek Holdings to build a digital asset infrastructure for capital markets workflows.

Maintain HOLD as valuations getting rich.

• While SGX saw good contributions from all business segments in 1HFY21, including equities, fixed income, currencies and commodities (FICC) on the back of heightened market volatility, we maintain our HOLD call as we believe valuations are getting rich.
• See SGX Share Price; SGX Target Price; SGX Analyst Reports; SGX Dividend History; SGX Announcements; SGX Latest News.

Keep watch on next phase of growth.

• We continue to monitor the execution of newly acquired Scientific Beta and BidFX which currently contributes ~6% to revenue, as SGX sets its sight on doubling revenues from Data, Connectivity, Indices (DCI) and FICC in the next four years.

Rui Wen LIM DBS Group Research | https://www.dbsvickers.com/ 2021-01-25

SGX Stock Analyst Report HOLD MAINTAIN HOLD 10.20 UP 8.400