Singapore Exchange (SGX) reported 3QFY14 results which came in within our expectations. Operating revenue fell 13.1% YoY but inched up 0.6% QoQ to S$165.6m, while net earnings dipped 22.4% YoY but rose 1.1% QoQ to S$75.8m. The YoY decline was driven largely by lacklustre Securities revenue (-32.1% to S$52.3m) as the daily average traded value slumped 37% to S$1.1b. Although SGX’s Derivatives revenue slipped slightly by 1.5% YoY to S$52.3m, there was an encouraging 10% growth in contract volumes if we exclude Nikkei 225 futures and options, which had a very strong 3QFY13.

Another key highlight during 3QFY14 was SGX’s announcement of a series of initiatives to improve the quality and liquidity of the securities market. For 9MFY14, operating revenue was almost flat at S$514.2m (+0.3%), forming 71.5% of our full-year forecast. Net earnings of S$243.0m represented a decline of 2.1% and constituted 72.3% of our FY14 projection. We are expecting a better 4Q ahead. An interim dividend of 4 S cents/share was declared, similar to 3QFY13, and brings 9MFY14 declared dividends to 12 S cents/share.

Looking ahead, SGX expects its FY14 operating expenses to come in around S$310-315m, an improvement from its previous S$320-330m guidance. It also intends to expand its distribution network and product offerings, which includes introducing RMB futures in 1QFY15 (subject to regulatory approvals). For now, we maintain our HOLD rating and S$7.22 fair value estimate on SGX.

Source: OCBC Research - 24 Apr 2014