Many little positives

SGX kicked off its FY14 by beating expectations handsomely. Securities clearing fees rate was higher-than-expected. Listing fees crept up and tech expenses growth was curbed. With new products to cement its position as the derivatives exchange of Asia, we turn positive.

 

1Q14 profit (S$92.3m) was 10% above our expectations and 11% above the Street?s. 1Q was 25% of FY14 estimates, more than we expected as 3Q (Jan-Mar) is typically stronger. The beat came from a variety of factors, which we think can keep up. We raise our FY14-16 EPS by 10-17%, roll forward our DDM-based target price to S$8.69 and upgrade from Underperform to Outperform. Catalysts include new derivatives products gaining traction.

What went right?

1) Securities revenue (38% of the total) came in strong as the clearing rate rose to 3.2bp (vs. average of 2.9bp). The higher rate was due to a low proportion of capped trades as retail activity rose and institutional trades shifted to a more diversified pool of smaller stocks. Although the 3.2bp rate is a little high and will recede, the focus on smaller names in Singapore means that the clearing rate should be higher than before.

  2) Listing fees (6% of total) crept up. This was due to a phased increase of listing fees and more rights and bonds issuances. The full effect of the fees hike is yet to be felt.

  3) Technology expenses did not rise as guided. SGX has guided for a rise in costs in FY14, but we think the original cost guidance was too high.

Earnings drivers in 2H14

We believe there are two key earnings catalysts to look for in 2H14-FY15. The first is the increase in listing fees which will come into full effect in 2H14. The second is the launch of new derivative products (Thai and the Philippines index futures) and further traction in the derivative space.

Our favourite: derivatives

 

Interestingly, derivative open interest rose 6% qoq in a quarter where volumes fell 16%. As products come on and add to client stickiness, there are clear signs that SGX is becoming the derivatives exchange of choice in Asia. We believe that is the key reason to buy SGX.



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17 October 2013

SGX reports first-quarter net profit of $92 million

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? Operating profit: $107 million, up 21%

? Net profit: $92 million, up 24%

? Earnings per share: 8.6 cents, up 24%

? Interim dividend per share: 4.0 cents

 

 

For the full SGX Financial Statements announcement, please visit www.sgx.com.

Revenue: $184 million, up 15% from a year earlier

Singapore Exchange - Continued positive outlook on shift towards Equities

Written By Stock Fanatic on Friday, October 4, 2013

What is the news?

SGX Ltd will be announcing its 1Q14 results on 17 Oct 2013. Based on monthly statistics recently released by SGX, 1Q14?s SDAV decreased (17.5%) q-q, (1.8%) y-y to S$1.329 billion. DDAV was (19.4%) weaker q-q, but 35.4% y-y to 0.415 million contracts.

How do we view this?

Due to economic concerns during the quarter, q-q trading activities for both the Securities and Derivatives were weaker than expected. On a y-y basis, 1Q14?s revenue is expected to be higher. Securities revenue is expected to be higher due to higher expected yield per dollar traded mitigating the marginally lower SDAV. Derivatives revenue is also expected to be higher due to the y-y higher DDAV. 

On a q-q basis, we expect lower revenue due to the lower trading activities for both Securities and Derivatives. 

On outlook, we continue to be positive for Securities and Derivatives. Markets are likely to be quieter relative to the earlier part of this year on concerns over both the pace of recovery of the global economy, and assessments over QE tapering by the US Fed. 

However, we continue to expect higher interest in global equities. Trading activities for both Securities and Derivatives are expected to increase as investors shift their interest from yield to growth. Continued q-q volatility is however expected.

Investment Actions?

We are positive on SGX on 

1) Higher Securities revenue forecast 

2) Strong Derivatives revenue 

3) Attractive dividends, with potential for increase. 

We adjust our forecast to reflect the lower SDAV and DDAV revenue expectations, but continued positive FY14 outlook. Based on our unchanged PE multiple of 24X, and lowered EPS of S$0.33, we derive a revised Target price of S$7.90. Based on current share price, we maintain our ?Buy? rating. (Read Report)

Source : Phillip Securities Research