• Slow 1Q was expected
• Management intensifying efforts
• Maintain HOLD and FV

1QFY15 came in within expectations

Singapore Exchange (SGX) posted 1QFY15 net earnings of S$77.6m, in line with consensus estimate of S$78.6m. This is down 16% YoY. Revenue fell 8% YoY to S$168.9m. Management has declared an unchanged dividend of 4 cents payable on 6 Nov 2014. The drag came from the Securities market, which continued to experience low trading activities. Securities daily average traded value (SDAV) fell 27% YoY to S$1.0b. For stocks priced below 20 cents, this plunged 66% to S$0.1b. SGX’s overall performance was fortunately mitigated by other businesses and Derivatives revenue now accounted for about 32% of total revenue. Total volumes of derivatives contracts rose 9% to 28.8m in 1Q. The China index futures, the FTSE A50, accounted for 10.8m contracts during the same period.

SDAV - trailing down, 4QCY2014 is yet another quiet quarter

Based on current market conditions and the lack of key Singapore market specific news, it was not surprising that the SDAV on the local bourse has been falling in the last four quarters. Since 1Q CY2013, quarterly SDAV has been on a general downtrend, moving down from S$1.7b to S$1.0b by the latest quarter. This lacklustre trend is unlikely to get any reprieve in 4QCY2014 based on early Oct numbers.

Intensifying its efforts  

Recent efforts by the SGX to increase the profile of listed companies, attract more institutional interest and to explore more collaboration could over time bring in more activities onto the local bourse. SGX has also introduced market makers and liquidity providers in Jun 2014 in an effort to increase liquidity and depth to the market. Next year, the standard board-lot size will be reduced from 1000 shares to 100 shares. On the operating side, management is expecting tech-related capital expenditure of between S$50-55m and guiding for operating expenses of S$330-340m for FY15.

Maintain HOLD

As 1Q came in largely in line with expectations and coupled with an expected quiet 2Q, we see no drivers to raise our FY15 projections. We are maintaining our fair value estimate of $7.26 and our HOLD rating on SGX.

Source: OCBC Research - 23 Oct 2014