SGX

SGX (S$7.56): Great start to 1QFY16 amid soaring derivatives and improving securities

SGX kicked off FY6/16 on a high with 1QFY16 net profit of $99.3m (+28%) topping estimates at 26.8% of full year consensus forecast.

Revenue soared 30.1% to $219.6m, led by its derivatives business (+69.1%), with securities (+13.8%), market data & connectivity (+12%), and depository services business (+24.4%) playing their part. Issuer services (-5.8%) was the only laggard amid a fall in listing revenue (-12.1%).

Derivatives, which accounts for 41% (1QFY15: 32%) of total revenue, stole the show as total volume swelled 82% to 52.5m contracts, notably from the heavily traded China A50 (+164%) and iron ore (+266%) futures, despite a lower average fee per contract (-16.5%).

Securities business (25% of total revenue) saw a 27% improvement in daily average traded value to $1.23b but average clearing fees declined 6% to 2.9bps. Turnover velocity for the quarter picked up to 46% against 32% last year.

There were no mainboard listing and only seven Catalist IPOs raising $103.9m in 1QFY16, compared to 13 new listings raising $1.9b a year earlier. About $41.6b was raised from 97 new bonds versus $52.8b drawn from 131 bond listings in 1QFY15.

Operating expenses rose at a slower pace to $102.3m (+25%) on better cost containment, especially from technology (10%). Consequently, operating margin expanded 1.9ppt to 53.4%.

In view of the strong start, interim DPS was raised by 1¢ to 5¢.

Management attributed the solid results to increased trading activities stirred by recent volatility in global financial markets, but cautioned that a persistently weak market sentiment may be a stumbling block in the coming quarters.

New CEO Loh Boon Chye set out three key priorities to ensure the exchange remains resilient - 1) improve liquidity in the securities market, especially STI’s small-mid caps, 2) maintain cost discipline, and 3) pursue diversification through growing FX futures market, broadening fixed income service offerings, as well as expanding market data and index businesses.

SGX currently trades at 22x consensus FY16e P/E, relatively lower than that of HKEx at 29.6x, and offers an annualised dividend yield of 4.1%.

Latest broker rating:
Credit Suisse maintains Outperform with a TP of $10.00
Deutsche maintains Buy with TP of $9.40
RHB upgrades to Buy, increases TP to $8.13 from $7.58
CIMB upgrades to Hold with a TP of $7.98
CLSA maintains SELL with a TP of $6.96