What You Need to Know about Singapore Exchange’s Dismal Third Quarter

The local stock market regulator and operator Singapore Exchange Limited (SGX: S68) – or SGX for short – posted its results for the third quarter of its financial year 2014 (3Q 2014) yesterday. In addition to providing a fully integrated service suite such as trading, clearing and settlement services, SGX has been developing alliances and new products in order to meet the changing needs of the international and domestic financial community.

Some basic figures

Different Segments / S$ (million) 3Q FY2014 3Q FY2013 Change
Securities 52.3 77.0 -32%
Derivatives 52.3 53.1 -2%
Market Data and Connectivity 19.0 18.1 5%
Depository Services 22.7 24.7 -8%
Issuer Services 19.1 16.5 16%
Other 0.2 1.3 -85%
Operating Revenue 165.6 190.7 -13%

Source: Singapore Exchange Earnings Report

For the quarter, total revenue had decreased 13% year-on-year to S$165.6 million from S$190.7 million. The drop’s mainly attributed to a poor showing from the Securities segment, which accounts for nearly one-third of the company’s total revenue.

For some operational highlights within that segment during the quarter, we have total traded value and daily average traded value at S$67.4 billion and S$1.1 billion currently. Those figures in turn represented a year-on-year decline of 35% and 37% respectively. While not mentioned in the company’s earnings release, the recent (and on-going) Russia-Ukraine standoff could have contributed to a ‘risk-off’ attitude in the financial markets, leading to lower appetites for the trading of securities.

Elsewhere, the Market Data and Connectivity and Issuer Services segments had turned in better results. The former saw revenue increase by 5% owning to “higher demand in the retail segment and increased usage by institutional clients for trading, risk management and back office applications.” With the latter, revenue was up 16% to S$19.1 million from S$16.5 million; while the total value of new equity and bond listings were lower during the quarter as compared to a year ago, revenue had improved due to higher revised listing fees.

All told, SGX’s quarterly net profit was 22% lower at S$75.8 million, roughly in line with the lower revenue generated. But despite the fall in the firm’s top- and bottom-lines, the company’s profitability is still strong given its healthy net profit margin and return on equity; those metrics stand at 45.8% and 40.3% respectively.

Financial position and growth plans

SGX’s balance sheet looks pristine with zero debt and a cash hoard worth some S$727 million. The net cash generated from operations for the quarter was at S$91.84 million, as compared to S$115.91 million in the previous year. The key cash outflows were for capital expenditures of S$24 million and S$42.8 million for dividends. With more than S$91.84 million in cash generated from its operations, those outlays are easily covered.

Magnus Bocker, chief executive of SGX, commented on some of the company’s progress during the quarter and touched on the February implementation of dynamic circuit breakers “as an additional market safeguard.”  Brocker then added that “a new fee structure covering both clearing and settlement fees” would come online on 1 June 2014.

Brocker also mentioned the company issuing “a joint consultation paper with the Monetary Authority of Singapore (MAS) which included proposlas for a minimum share price, share collateral requirements, and the introduction of a Listings Advisory Committee and a Listings Disciplinary Committee”.

During the quarter, to support SGX’s focus on China’s capital markets, the company had also announced “several new derivative contracts including more foreign exchange futures such as contracts for the reminbi and the China A50 equity index options”.

SGX had declared an interim dividend of 4.0 Singapore cents per share for the quarter, unchanged from last year. Shares of the company last traded at $6.94, translating to a historical PE ratio of 22.5 and a dividend yield of 4.03%.

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