Singapore Exchange - OCBC Investment 2022-08-18: Steady FY22 Results


Singapore Exchange - Steady FY22 Results

  • Singapore Exchange (SGX, SGX:S68)'s FY22 revenue of S$1.099b increased 4% y-o-y, reaching a new record since listing, while net profit of S$451m increased 1% y-o-y.
  • Final quarterly dividend of S$0.08 per share proposed, bringing SGX's FY22 total dividends to S$0.32 per share, flat from a year ago.
  • SGX guides for continued cost inflation in FY23.
  • Introduced climate reporting and board diversity disclosure requirements for listed companies in FY2022, which will be implemented in phases although companies in more carbon-intensive sectors are mandated to furnish from FY2023.

SGX's FY2022 Results Highlights

  • SGX's FY22 net profit was slightly ahead of consensus expectations on good cost management – 2HFY22 net income of S$233m increased 13% y-o-y/+6% h-o-h, with strength in derivatives and FICC (fixed income, currencies and commodities) helping to mitigate weaker cash.
  • FY22 revenues and net profit of S$1.099b (a new record since listing) and S$451m increased 4% and 1% y-o-y respectively. Excluding treasury income, FY22 revenue grew 7% to S$1.0495b. FY22 EBITDA margin moderated to 58%. Stripping out non-cash and non-recurring items which have less bearing on SGX’s operating performance, FY22 adjusted EBITDA and net profit of S$456m and S$456.4m increased 2% y-o-y.
  • A final quarterly dividend of S$0.08 per share was proposed, which brings SGX's FY22 total dividends to S$0.32 per share, flat y-o-y, and an implied FY22 dividend payout ratio of 76% (versus 77% in FY21).

FICC was a key revenue driver in FY22

  • FICC revenue increased 19% to S$252.7m, which accounted for 23% of total topline. By segments, fixed income revenue declined 18% to S$12.2m weighed by lower listing revenue (S$8.7m, -24%). Currencies and commodities revenue grew 22% to S$240.6m, accounting for ~22% of total revenue.
  • Over the counter (OTC) FX revenue of S$58.4m increased 47% from a year ago. Trading and clearing revenue benefited from increased volumes in commodity and currency derivatives as well as higher contribution from OTC FX. Commodity derivatives volumes grew 21% to 30.3m contracts, while currency derivatives volume grew 10% to 28.5m contracts. Overall OTC FX average daily volume (ADV) of US$70.6b increased 64%.
  • The acquisition of MaxxTrader in January 2022 and contributions from BidFX has contributed to the growth in OTC FX, where the pillar now contributes ~5% of SGX’s total revenue. Average daily volume (ADV) grew 64% y-o-y in FY22 to US$70.6b, which looks on track to achieve ADV of US$100b in the medium term.
  • For equities segment, cash revenue fell 6%, accounting for 35% of total revenues due to a decline in corporate actions/other revenue (-14%), trading and clearing revenue (-9%) and treasury and other revenue (-14%), which were partly mitigated by a modest increase of 2% for securities settlement and depository management revenue while listing revenue was flattish at S$34.8m. DAV and total traded value fell 6% to S$1.27b and S$320.8b respectively. Average clearing fees fell 5% to 2.56 bps (basis points).
  • Equity derivatives revenue grew 8% to S$310.4m, contributing 28% of total revenue, which was largely driven by 22% increase in trading and clearing revenue of S$281.9m while treasury and other revenue fell 50% to S$28.6m.
  • Data, connectivity, and indices revenue grew 3% to S$147.4m, accounting for 13% of total topline. Increase in data subscription and its co-location services supported the 3% revenue growth.
  • For FY22, total capital expenditure was S$54.6m, where investments were made in setup of infrastructures for Gujarat International Finance Tec-City Connect and BidFX as well as upgrades to the Titan OTC trade reporting system.

SGX guides for continued cost inflation in FY23

  • SGX's total expenses are expected to grow in the 7-9% range for FY2023, versus a 7% expense growth in FY22. The two-percentage point increase for FY23 is due to the full year impact from consolidating MaxxTrader, and will cover building of its OTC FX business, wage adjustments (due to cost inflation) and hiring activities that were postponed in FY22. Beyond FY23, management expects cost growth could trend towards 5%.
  • FY23 CAPEX expense is expected to increase to S$70-75m (vs FY22’s S$55m which represented 5% to revenues) and should stay at similar level over the medium term to support major system upgrades.

SGX's balance sheet remained healthy

  • Gross debt to EBITDA increased from 0.9x in FY21 to 1.2x in FY22.
    • Gross debt increased in FY22 from S$539m in FY21 to 789m in FY22, largely due to a US$250m medium term note issued in September 2021 (locked in low rate in a rising interest rate environment).
    • EBITDA to interest coverage ratio remained healthy at > 100x (although reduced from > 200x in FY21).
  • Over the medium-term, SGX is expected to focus on executing its core strategies to advance its multi-asset exchange platform, widen its partnerships and network, and grow its international presence, which bodes positively for future earnings streams.
  • SGX remains focused on building up its non-equity business (FICC and DCI) to diversify its portfolio. Foreign exchange business will be one of the company’s key growth drivers, following the acquisition of BidFX (multi-dealer streaming platform), Maxxtrader (complements BidFX with its direct streaming capabilities) and establishment of an electronic communication network (ECN) (which introduces anonymous pools of trading). It is currently a meaningful player in the bond market and plans to continue to form partnerships (be it contracts jointly traded/connects etc) and to expand its international presence to up-sell to existing clients or expand its client base.
  • See

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2022-08-18
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