SGX

SGX turned in 4QFY15 net profit of $96.2m (+24.3% y/y) taking FY15 earnings to $348.6m (+8.8%), which met street estimates.

For the final quarter, revenue jumped 24.9% to $215.6m with all segments contributing to the growth, particularly derivatives (+57.7%), supported by securities (+7.2%) and other operations (+13.3%).

Over the full year, revenue grew 13.4% to $778.9m, powered by exponential 41.7% growth in the derivatives segment to a record $295.7m, and now accounts for 38% (FY14: 30%) of total turnover. Total volumes spiked 55% to 161.2m contracts on the back of a surge in China A50 (+220%) and India Nifty (+20%) index futures contracts.

Commodities derivatives also did well, such as iron ore (+258%) and rubber (+54%). FX Futures also saw remarkable growth, leaping 22-fold to 2.1m contracts.

Securities revenue was the only blemish, with revenue dipping 7.7% to $209.3m due to the lack of market volatility, which drove daily average trade value to $1.09b (-4%). Turnover velocity shrank to 36% from 39% in FY14. Clearing fees fell to 3 bps (FY14: 3.1bps) following a downward rate revision in Jun '14.

Operating expenses expanded 19.5% to $376.7m primarily due to:
1) Staff costs (+18.5% to $150m) post assimilation of Energy Market Company
2) Technology expenses (+9.8% to $115.9m) on higher system maintenance costs following market disruptions
3) Processing and royalties (+65.1% to $46.9m) along with derivatives growth

Consequently, operating margins slid 2.5 ppt to 51.6% from 54.1%.

Technology-related capex climbed to $74.5m (+56%) as the exchange invested in a new post-trade system, an upgraded derivatives trading and clearing platform, and a new fixed income trading platform.

SGX has proposed a final DPS of $0.16, bringing the total FY15 payout to an unchanged $0.28, which gives a dividend yield of 3.5%.

Management is optimistic about prospects even as the global economy remains uncertain and volatile. This could ultimately mean that growth in its securities business is expected to stay muted with derivatives picking up the slack.

New CEO Loh Boon Chye is conscious of the challenges facing the securities industry and sees the need to address the hitherto dry listings pipeline and improve trading activity but has yet to detail any plans to achieve this.

SGX is currently trading at 22.6x forward P/E compared to HKEx at 28x.

Latest broker ratings:
Deutsche maintains Buy with TP of $9.70
OCBC maintains Hold, raises TP to $8.16 from $7.95
Nomura maintains Neutral with TP of $7.90