Singapore | Diversified Financial Services
Asia Pacific Equity Research
SINGAPORE EXCHANGE | BUY
MARKET CAP: USD 5.8B
22 Oct 2015
Company Update
AVG DAILY TURNOVER: USD 15M
DERIVATIVES CONTINUES TO
DRIVE GROWTH
BUY (upgrade)
Fair value
S$8.16



add: 12m dividend forecast
S$0.28
versus: Current price
S$7.51
Derivatives to drive growth
3-pronged business strategy ahead
Upgrade to BUY
12m total return forecast
Better than expected results
Singapore Exchange (SGX) posted a 28% YoY or a 3% QoQ increase
in 1QFY16 net earnings to S$99.3m, higher than market expectations
of S$90.3m (based on a Bloomberg consensus estimate). Derivatives
remained the star performer, with a 69% YoY and 6% QoQ jump in
revenue to S$90.9m. This was led by a 67% gain in equities and
commodities derivatives revenue to S$67.1m. The SGX FTSE China
A50 Index futures saw a 164% YoY rise in volume to 28.4m contracts.
Securities saw a 14% YoY and flat QoQ revenue of S$55.9m.
Securities Daily Average Traded Value (SDAV) grew 27% YoY to
S$1.23b, while the SDAV of STI stocks jumped 61% to S$0.88b. With
the change in base dividend policy, this quarter’s payout increased
from 4 cents to 5 cents. Ex-date is 27 Oct and payment date is 5 Nov
2015.
New CEO outlined business strategy
For his maiden result briefing, CEO Loh Boon Chye outlined his
strategy to grow the market for currency futures, develop SGX as the
regional fixed income platform and grow the market data and index
business. While the currency futures segment is already part of its
existing business, SGX is looking to expand it. For the fixed income
platform, it will be launching the SGX Bond Pro trading platform
targeting Asia’s wholesale bond trading market (from listing and
trading to clearing and settlement).
Maintain FV of S$8.16; upgrade to BUY
With investments into staff and technology, SGX is guiding for
operating expenses of S$425m to S$435m and technology-related
capital expenditure of S$75m to S$80m in FY16. We expect
continuous volatility in the Asian market in the coming months and
with slower corporate activities and M&As, this will result in a muted
outlook for equities and lackluster securities trading. The key driver
will continue to be SGX’s derivatives business, and we are expecting a
25.5% increase in derivatives revenue in FY16. We are retaining our
fair value estimate of S$8.16 but as its share price has come off since
our last report, at current level and on valuation grounds, we upgrade
SGX to a BUY.
12%
Analysts
Carmen Lee (Lead) ● +65 6531 9802
carmen@ocbc-research.com
Carey Wong ● +65 6531 9808
carey@ocbc-research.com
Key information
Market cap. (m)
S$8,048 /
USD5,774
Avg daily turnover (m)
S$21 /
USD15
Avg daily vol. (m)
2.7
52-wk range (S$)
6.9 - 8.8
Free float (%)
76.3
Shares o/s. (m)
1,071.6
Exchange
SGX
BBRG ticker
SGX SP
Reuters ticker
SGXL.SI
SGX code
GICS Sector
GICS Industry
Top shareholder
Relative total return
S68
Financials
Diversified Financial
Svcs
Sel Holdings Pte Ltd –
23.33%
1m
3m
12m
Company (%)
2
-9
14
STI-adjusted (%)
-3
0
16
Price performance chart
Sources: Bloomberg, OIR estimates
Key financial highlights
Year Ended Jun 30 (S$m)
FY14
FY15
FY16F
FY17F
Revenue
686.9
778.9
872.9
967.4
- Securities revenue
226.9
209.3
216.3
222.3
- Derivatives revenue
208.7
295.7
371.1
440.2
Net profits, excl exceptionals
320.4
348.6
375.4
408.2
30.0
32.6
35.0
38.1
Cons. EPS (S cts)
na
na
34.4
37.3
Gross margin (%)
54.1
51.6
50.3
49.4
Pretax margin (%)
55.2
52.8
51.1
50.2
ROE (%)
35.4
36.7
37.0
36.7
PER (x)
25.1
23.1
21.4
19.7
EPS (S cents)
Industry-relative metrics
Note: Industry universe defined as companies under identical GICS classification listed
on the same exchange.
Sources: Bloomberg, OIR estimates
Please refer to important disclosures at the back of this document.
MCI (P) 005/06/2015
OCBC Investment Research
Singapore Equities
Exhibit 1: Key Highlights of 1QFY16 Results
Y/E: Jun 30 (S$m)
1QFY16
1QFY15
YoY
4QFY15
QoQ
Revenue
219.6
168.9
30.1%
215.6
1.9%
- Securities revenue
55.9
49.1
13.8%
55.7
0.5%
- Derivatives revenue
90.9
53.7
69.1%
85.8
5.9%
- Market data
9.6
8.6
11.8%
9.3
3.5%
- Member services & connectivity
11.9
10.6
12.1%
11.5
3.4%
- Depository services
29.7
23.9
24.4%
28.7
3.4%
- Issuer services
21.4
22.7
-5.8%
24.2
-11.8%
Operating Expenses
102.3
81.9
24.9%
104.9
-2.5%
- Staff costs
42.0
33.5
25.5%
43.4
-3.2%
- Technology
30.5
27.9
9.5%
29.9
2.1%
- Processing and royalties
15.5
7.7
101.1%
14.5
6.9%
- Premises
6.0
5.1
17.9%
5.9
1.0%
Operating Profit
117.3
87.0
34.9%
110.7
6.0%
Pretax Profit
119.7
89.6
33.5%
112.7
6.2%
Net Profit
99.3
77.6
28.0%
96.2
3.2%
2
OCBC Investment Research
Singapore Equities
Company financial highlights
Income statement
Year Ended Jun 30 (S$m)
FY14
FY15
FY16F
FY17F
686.9
226.9
208.7
251.3
371.7
315.2
126.5
379.0
320.4
320.4
778.9
209.3
295.7
274.0
402.2
376.7
150.0
411.5
348.6
348.6
872.9
216.3
371.1
285.5
438.8
434.1
172.6
446.4
375.4
375.4
967.4
222.3
440.2
304.8
477.5
489.8
195.2
485.4
408.2
408.2
FY14
FY15
FY16F
FY17F
756.9
572.2
61.5
1,641.1
0.0
719.0
719.0
428.3
922.1
1,641.1
789.9
653.5
61.2
1,801.6
0.0
825.2
825.2
428.6
976.4
1,801.6
786.9
939.9
61.2
2,090.2
0.0
1,034.5
1,034.5
428.6
1,055.6
2,090.2
868.5
991.2
61.2
2,227.9
0.0
1,061.4
1,061.4
428.6
1,166.5
2,227.9
FY14
FY15
FY16F
FY17F
376.6
-18.0
358.6
-71.8
6.5
-65.2
-299.5
-6.1
613.0
606.8
409.6
19.4
429.0
-82.4
-12.9
-95.4
-307.9
25.8
606.8
632.6
446.4
77.9
524.4
-65.0
5.0
-60.0
-310.0
154.3
632.6
786.9
485.4
8.3
493.8
-75.0
5.0
-70.0
-342.2
81.6
786.9
868.5
Key rates & ratios
FY14
FY15
FY16F
FY17F
EPS (S cents)
NAV per share (S cents)
Gross margin (%)
Pretax margin (%)
Net profit margin (%)
PER (x)
Price/NAV (x)
Dividend yield (%)
ROE (%)
Net gearing (%)
30.0
86.2
54.1
55.2
46.7
25.1
8.7
3.7
35.4
0.0
32.6
87.9
51.6
52.8
44.8
23.1
8.5
3.7
36.7
0.0
35.0
95.2
50.3
51.1
43.0
21.4
7.9
3.7
37.0
0.0
38.1
105.5
49.4
50.2
42.2
19.7
7.1
4.1
36.7
0.0
Revenue
- Securities revenue
- Derivatives revenue
- Other revenue
Gross profit
Operating expenses
- Staff costs
Pretax profits
Net profits
Net profits, excl exceptionals
Balance sheet
As at Jun 30 (S$m)
Cash and cash equivalents
Inventories
Property, plant, equipment
Total assets
Debt
Current liabilities excluding debt
Total liabilities
Shareholders equity
Total equity
Total equity and liabilities
Cash flow statement
Year Ended Jun 30 (S$m)
Operating profits
Working capital, taxes and int
Net cash from operations
Purchase of PP&E
Other investing flows
Investing CF
Financing CF
Net cash flow
Cash at beginning of year
Cash at end of the year
Sources: Company, OIR forecasts
Company financial highlights
OCBC Investment Research
Singapore Equities
SHAREHOLDING DECLARATION:
The analyst/analysts who wrote this report holds/hold NIL shares in the above security.
DISCLAIMER FOR RESEARCH REPORT
This report is solely for information and general circulation only and may not be published, circulated,
reproduced or distributed in whole or in part to any other person without the written consent of OCBC
Investment Research Pte Ltd (“OIR” or “we”). This report should not be construed as an offer or solicitation for
the subscription, purchase or sale of the securities mentioned herein or to participate in any particular trading
or investment strategy. Whilst we have taken all reasonable care to ensure that the information contained in
this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or
completeness, and you should not act on it without first independently verifying its contents. Any opinion or
estimate contained in this report is subject to change without notice. We have not given any consideration to
and we have not made any investigation of the investment objectives, financial situation or particular needs of
the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability
whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any
class of persons acting on such information or opinion or estimate. You may wish to seek advice from a
financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your
investment objectives, financial situation or particular needs, before making a commitment to invest in the
securities. In the event that you choose not to seek advice from a financial adviser, you should consider
whether investment in securities and the securities mentioned herein is suitable for you. Oversea-Chinese
Banking Corporation Limited (“OCBC Bank”), Bank of Singapore Limited (“BOS”), OIR, OCBC Securities Pte
Ltd (“OSPL”) and their respective connected and associated corporations together with their respective
directors and officers may have or take positions in the securities mentioned in this report and may also
perform or seek to perform broking and other investment or securities related services for the corporations
whose securities are mentioned in this report as well as other parties generally.
The information provided herein may contain projections or other forward looking statements regarding future
events or future performance of countries, assets, markets or companies. Actual events or results may differ
materially. Past performance figures are not necessarily indicative of future or likely performance.
Privileged / confidential information may be contained in this document. If you are not the addressee indicated
in this document (or responsible for delivery of this message to such person), you may not copy or deliver this
message to anyone. Opinions, conclusions and other information in this document that do not relate to the
official business of OCBC Bank, BOS, OIR, OSPL and their respective connected and associated
corporations shall not be understood as neither given nor endorsed.
RATINGS AND RECOMMENDATIONS:
- OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading
oriented.
- OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment
horizon.
- As a guide, OIR’s BUY rating indicates a total return in excess of 10% based on the current price; a HOLD
rating indicates total returns within +10% and -5%; a SELL rating indicates total returns less than -5%.
Co.Reg.no.: 198301152E
Carmen Lee
Head of Research
For OCBC Investment Research Pte Ltd
Published by OCBC Investment Research Pte Ltd
Important disclosures
Published by OCBC Investment Research Pte Ltd