• Earnings in line with consensus
• Derivatives is the star performer
• Upped FV to S$8.16

Results were in line with expectations

Singapore Exchange (SGX) posted a 24% YoY or a 9% QoQ increase in 4QFY15 net earnings to S$96.2m, resulting in an 8.8% increase in FY15 earnings to S$348.6m. The star performer was Derivatives, which generated a 42% rise in FY15 revenue of S$295.7m, far surpassing the S$209.3m posted by Securities. The 8% decline for the latter was due to a 4% drop in securities daily average traded value (SDAV) and a 4% drop in total traded value. Derivatives business posted a record year buoyed by higher volumes for several products including Iron Ores (+258%) and the SGX FTSE China A50 Index futures (+220%).

Volatility and uncertainty

Management expects the “uncertain and volatile” global economy to “pose challenges” to its Securities market, but this should be mitigated by higher demand for its Derivatives products. Expenses rose 20% in FY15 and are likely to remain high due to investment in staff and technology. As a result of this, management is guiding for operating expenses of S$425m to S$435m in FY16 and for technology-related capital expenditure to be in the range of S$75m to S$80m.

Derivatives to drive growth

The recent sell-down in the Chinese market has resulted in volatility and this could benefit its Derivatives business, which is likely to continue to outpace the contribution from its Securities market. For the Securities business, the IPO market is quiet and there was also a marked slowdown in corporate deals. While there are initiatives to boost retail interest in equities, these are unlikely to yield any strong results for the near to medium term.

Raised Fc from S$7.95 to S$8.16; maintain HOLD

Management is proposing to raise the base dividend payout per quarter from the current 4 cents to 5 cents, to even out its dividend payout per quarter and to remove the lumpy final quarter payout. As we roll into FY16, and maintaining the same 23x valuations, we raised our fair value estimate from S$7.95 to S$8.16. Maintain HOLD.

Source: OCBC Research - 30 Jul 2015