• Derivatives now 40% of earnings
• Securities activities picking up this quarter
• Increasing FV to S$7.95

Delivered 3QFY15 earnings of S$88m

Singapore Exchange posted 3QFY15 net earnings of S$88.2m, up 16% YoY or 2% QoQ. Derivatives Revenue is now 40.0% of total earnings versus 31.6% a year ago. The reverse was seen for its Securities Revenue, which fell from 31.6% of group revenue last year to 26.5% this quarter. For its Derivatives business, revenue grew 52% YoY to S$79.7m this quarter versus an almost flat growth of 1% for its Securities businesses. Growth for its Derivatives Revenue was driven by robust trading for the SGX FTSE China A50 Index futures and the CNX India Nifty Index futures.

No trading links for now

In addition to its recent announcement that it is not currently in the process of establishing a link similar to the Shanghai-HK connect, management further shared at its result briefing that the Taiwan trading link is not scheduled to start in July this year, and that the link is likely to start in 1H 2016 noting that it is not easy to connect markets.

Good start to SGX’s final quarter

Trading activities have picked up since the start of April, the final quarter for SGX. As a comparison, average daily trading volume in April is in excess of 2.7 billion per day versus the average of 1.4 billion in the first three months of 2015, up 84%. Similarly, average traded value has also improved, but up a more modest 6%. With many Singapore-listed companies having exposure to China, the recent positive sentiment and momentum in North Asian markets has also positively spilled over to benefit the Singapore bourse.

Maintain HOLD rating

Driven by the recent increase in trading volume and market expectations of further link-ups with overseas bourses, SGX’s stock price has posted good gains. As we have adjusted our FY15 and FY16 forecasts to take into account better trading activities in the final quarter and the positive outlook for its Derivatives businesses, we are raising our fair value estimate from S$7.52 to S$7.95. Dividend yield is still decent at 3.3% based on current price. Maintain HOLD.

Source: OCBC Research - 23 Apr 2015