• Flat earnings
• Lowering expense guidance
• Increasing FV to S$8.16

Fairly Flat Performance

Singapore Exchange (SGX) posted a fairly in line set of 2QFY18 results. Net earnings were flat YoY at S$88.3m, down marginally QoQ. Operating revenue was also flat YoY and QoQ. Equities and Fixed Income Revenue fell 4% to S$97.5m or 48% of total revenue. Derivatives Revenue gained 11% YoY to S$83.3m or 41% of total group revenue. Listing revenue improved partly due to more bond listings with 289 bond listings (versus 204 in the previous year) which raised a total of S$103.5b. Market Data and Connectivity revenue improved 4% to S$24.2m. This was largely due to revisions in data usage fees.

Expenses rose 5% to S$102m. Management is guiding for FY18 operating expenses of S$410m to S$420m (versus the earlier guidance of S$425m to S$435m) and for technology capital expenditure of S$60m to S$65m. An interim dividend of 5 cents has been declared. This will be paid on 5 Feb 2018.

New Products

Management said at the briefing that it plans to go ahead with the dual class shares and expects the first dual class listing soon. It also plans to launch Indian single stock futures. In terms of pipeline and mandates, indication is that this is healthy and likely to be better than 2017. This is in addition to what was already previously launched including Daily Leverage Certificates. The exchange is also working on its collaboration and connectivity and this included its previously announced presence in Chicago.

Raising Fair Value to S$8.16; Still a HOLD

In the past three trading session, the stock has gained 5.4% to close at S$7.98 on Friday. This was partially supported by gains in regional equity markets as well as a good start to 2018 with improved trading activities.

We have moved our valuation peg from 22x earnings to 24x earnings to be in line with the recent re-rating of its listed peers. Based on 24x FY18 earnings, SGX’s fair value estimate moves up from S$7.87 to S$8.16. At current price, the dividend yield is 3.8%. We are retaining our HOLD rating.

Source: OCBC Research - 22 Jan 2018