SGX had a decent start to the year with 1QFY14 net profit up 24% y-o-y (+5% q-o-q, based on reported net profit) to SGD92m. Average daily turnover (ADT) in the securities market was stable y-o-y but down 16% q-o-q to SGD1.3bn. Meanwhile, derivative volume posted strong y-o-y growth (+36% y-o-y). Our earnings forecasts and SGD8.10 FV (23x CY14 EPS) are unchanged. Maintain NEUTRAL.
- 1QFY14 results in line. SGX's 1QFY14 net profit of SGD92m (+24% yo-y; +5% q-o-q) was within our and consensus expectations, accounting for 25% of our and consensus full-year net profit estimates.
- Higher clearing fee, better derivative volume drive y-o-y profit growth. Y-o-y, while average daily turnover (ADT) in the securities market was broadly stable at SGD1.3bn, securities revenue rose 15%. Average clearing fee increased to 3.2bps from 2.7bps a year ago, as the proportion of capped trades fell to 35% from 46% in 1QFY13, with institutions trading a broader range of stocks and retail participationrising. Turnover velocity, however, was weaker at 47% (1QFY13: 51%; 4QFY13: 55%). Meanwhile, derivatives revenue was up 16% y-o-y as total traded volume jumped 36% y-o-y to 26.4m contracts, led by the FTSE China A50 futures, Nikkei 225 futures and options, and iron ore swaps. Q-o-q, revenue fell 9% reflecting weaker ADT (-16% q-o-q) and derivative volume (-16% q-o-q).
- Expenses broadly under control (+6% y-o-y; -6% q-o-q). Management continued to guide for FY14 operating expenses of SGD320m-330m (FY13: SGD300m). Technology-related capital expenditure is expected be around SGD35m-40m.
- Dividend. As expected, SGX declared an interim DPS of 4 cents (1QFY13: 4 cents). We are forecasting FY14 total DPS of 31 cents (FY13: 28 cents), based on a net payout ratio of 90%.
- Forecasts. No changes to our earnings forecasts.
- Valuation and recommendation. We are maintaining our SGD8.10 FV,which is based on target CY14 P/E of 23x (a 10% discount to average P/E of 25x). Maintain NEUTRAL.