Singapore Exchange - UOB Kay Hian 2022-02-08: 1HFY22 Mixed Results As Derivatives Outperform, Dragged Again By Treasury Income

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SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Exchange - 1HFY22 Mixed Results As Derivatives Outperform, Dragged Again By Treasury Income

• SGX reported lower 1HFY22 net profit, down 8.7% y-o-y as lower treasury income and trading velocity affected overall revenue. Excluding treasury income, the currencies, commodities and equity derivatives segments posted robust double-digit revenue growth as demand surged.
• Although SGX’s underlying businesses are stable and growing, we do not see any near-term catalysts to justify a re-rating.

SGX's muted 1HFY22 earnings within our expectations.

• For 1HFY22, Singapore Exchange (SGX, SGX:S68) reported revenue and net profit of S$521.6m (+0.2% y-o-y) and S$219.0m (-8.7% y-o-y) respectively, forming 47/50% of our FY22 estimates. Excluding treasury income and positive one-off adjustments from SGX's 1HFY21 acquisition of BidFX, SGX’s 1HFY22 underlying core business revenue would have grown 6.0% y-o-y while net profit would have only softened 3% y-o-y.
• SGX's operating profit dropped 4.8% y-o-y on 5.6% higher y-o-y operating expenses as overall headcount increased.
• SGX declared 1HFY22 dividend of 16 cents, same as 1HFY21. SGX management has no plans to introduce a scrip dividend scheme in FY22 and would reassess the scheme at a later date.

Mixed segmental performance.

• SGX’s core revenue growth driver, fixed income, currencies, commodities (FICC) segment, posted a strong 14.9% y-o-y revenue growth as commodities and currency derivative volumes grew 11.8% y-o-y. Cash equities segmental revenue dropped 5.2% usually a 6-9 months lag.

Earnings revision & Recommendation for SGX

• We lower our FY22-24 earnings forecast for SGX by 6%, 4% and 0.3% respectively, due to lower treasury HKEX and sliding SDAV would impact earnings.
• We think significant revenue from new initiatives such as SGX’s FX ETC network and SPACS would take time to gestate and major success from these initiatives could re-rate SGX to trade around to peers’ average (29.6x).
• See
  • SGX's Share Price,
  • SGX's Target Price,
  • SGX's Analyst Reports,
  • SGX's Dividend History,
  • SGX's Announcements,
  • SGX's Latest News.
• Catalysts: Secondary listings of foreign listed entities, longer-than-expected period of trading volatility.

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-02-08

SGX Stock Analyst Report HOLD MAINTAIN HOLD 9.09 DOWN 9.740