• Derivatives jumped to S$91m
• Dividend yield of 3.7%
• Raising FV to S$8.22

Above Expectations 3Q

Singapore Exchange (SGX) posted strong 3Q net earnings of S$100.5m, up 21.0% YoY and 13.7% QoQ, and above both the street and our expectations. The positive surprise came from sharply better Derivatives Revenue which rose 20.4% YoY to S$90.5m. The last time Derivatives Revenue crossed the S$90m mark was in 1Q16. Since then, Derivatives Revenue has been hovering at an average of about S$78m per quarter.

On the back of this, margins showed across the board improvements QoQ and YoY. For example, operating margin rose from 50.0% in 2QFY18 to 53.0% in 3QFY18. Equities and Fixed Income Revenue also showed improvement this quarter, up 4.7% YoY and 10.6% QoQ to S$107.9m. Operating expenses moved up, but the pace of increase was lower than the growth in operating revenue. The 5 S cents dividend will be paid on 8 May 2018, with book closure on 30 April 2018.

Management Expects Market Activity to Improve

Together with a strong set of 3Q results, it is heartening to note that management is expecting market activity to improve. The group is also focusing on strengthening its partnerships and strategic alliances. Management has also retained its guidance of operating expenses of S$410m to S$420m for FY18, with technologyrelated capital expenditure at around S$60m to S$65m.

Upping Fair Value Estimate to S$8.22

We have raised our earnings for FY18 to account for the stronger 3Q and this brings our full year earnings projection from S$364.1m to S$371.9m. Together with this, our fair value estimate moves up slightly from S$8.16 to S$8.22. SGX is offering a total return of about 12.4% (including dividend yield of 3.7%) based on the share price of S$7.56

Source: OCBC Research - 23 Apr 2018