• Revenue improvement
• Working on collaborations
• Still a HOLD

Broad-based 1QFY18 Improvement

Singapore Exchange (SGX) posted 1QFY18 net earnings of S$90.7m, up 9.2% YoY and +6.4% QoQ. On a YoY basis, there was improvement in revenue from Equities and Fixed Income (+2% YoY and accounted for 49% of total revenue) and Derivatives (+14% YoY and 39% of revenue). Market Data and Connectivity was the stable segment, showing both YoY and QoQ improvement with revenue of S$24.2m, but this constituted only about 12% of revenue.

There was clear improvement in operating margin which rose from 47.8% last quarter to 51.8% this quarter. Staff cost rose at a smaller YoY percentage than the increase in revenue. Both Issuer Services Revenue and Securities Trading and Clearing Revenue rose YoY, and the former benefited from a 6% increase in listing revenue.

With the 18% increase in Securities Daily Average Traded Value (SDAV) for the quarter, this helped to lift revenue for securities trading and clearing. Management has declared a 5 cents dividend for this quarter. Book close is on 2 Nov and payable date is on 9 Nov 2017.

No Change in Guidance

Management is guiding for FY18 operating expenses of S$425m to S$435m (actual FY17 expenses of S$399m) and technology-related capital expenditure of between S$60m-S$65m. Management is fairly positive about its strategy and outlook, and has also guided for more IPO listings in the next 2-3 months and is also lining up to launch more new products. The recent Daily Leverage Certificate is also cited as one of the new products which have seen good trading activity. The exchange is also seeking to grow its collaboration with other exchanges and has recently set up office in Chicago.

Marginal Increase in FV From S$7.83 to S$7.87

While most leading indices are up for the year, we expect higher valuations to rein in some of the buying interest especially as we head towards the lull months in late November to December. We are keeping our forecast largely intact for FY18 and making some upwards revision to FY19. On that basis, our fair value estimate rises marginally from S$7.83 to S$7.87. Retain HOLD.

Source: OCBC Research - 26 Oct 2017