SINGAPORE (April 21): Analysts are standing pat on their recommendations even as Singapore Exchange (SGX) saw earnings slide 6.8% to $83.1 million in the third quarter ended March.
A 30% drop in trading volume from China A50 contracts resulted in SGX's derivatives segment posting an 8.6% decline in revenue to $75.2 million in 3Q.
In addition, SGX saw a one-off loss of $4.0 million from the disposal of its investment in the Bombay Stock Exchange during the quarter. Excluding this, net profit in 3Q would have been $87.0 million, 2% lower than a year ago.
However, OCBC Investment Research lead analyst Carmen Lee notes that this is still below Bloomberg consensus estimate of $90.3 million.
(See: SGX 3Q earnings down 7% to $83 mil on one-off loss, lower revenue)
"The equity rally in 1Q 2017 helped to mitigate the decline in revenue from its derivatives segment," says Lee. "While global equity markets have done relatively well this year... we expect volatility and uncertainty to remain as corporate earnings outlook is still fairly muted for this year."
OCBC has cut its FY17 estimates to reflect the drag from the derivatives segment. Accordingly, SGX's fair value estimate was lowered to $7.53, from $7.64 previously.
Meanwhile, it is keeping its "hold" rating on SGX, but will accumulate at $7.10 or lower.
DBS Group Research's lead analyst Ling Lee Keng, however, notes that derivatives revenue has declined, the average fee per contract has increased.
"Average fee per contract rose to $1.20 from $1.15 y-o-y, primarily due to changes in the mix of derivatives contracts traded," says Ling.
At the same time, Ling says expenses also fell 3% as a result of lower processing and royalties fees due to lower derivatives trading volume.
"We continue to expect a better trading environment on improving market activity and cyclical upturn in the Singapore economy," Ling says.
In line with this, DBS is keeping its "buy" call on SGX with an unchanged target price of $8.30.
As at 3.05pm, shares of SGX are trading 4 cents higher at $7.49.