What Investors Need To Know About Singapore Exchange Limited’s Latest First Quarter Earnings

Stock exchange operator and regulator Singapore Exchange Limited (SGX: S68) reported its first quarter results yesterday evening and saw its total revenue dip 8% to S$169 million compared to a year ago. The company’s net profit also came in 16% lower at S$78 million.

Singapore Exchange has five main business segments: Securities; Derivatives; Market Data and Connectivity; Depository Services; and Issuer Services. Let’s take a look at how each segment performed for the first quarter of the financial year ending 30 June 2015 (FY2015).

Some basic figures

Different segments Revenue: First quarter FY2015 Revenue: First quarter FY2014 Change
Securities 49.1 69.0 -28.8%
Derivatives 53.7 51.7 3.9%
Market Data and Connectivity 19.3 18.9 1.7%
Depository Services 23.9 25.2 -5.5%
Issuer Services 22.7 18.9 20.4%
Other 0.2 0.3 -37.7%
Operating Revenue 168.9 184.1 -8.3%

Source: Singapore Exchange earnings release

For the quarter ended 30 September 2014, the Derivatives segment outshone the Securities segment by taking over the spot of being the largest revenue contributor to Singapore Exchange. Derivatives revenue grew a modest 3.9% from S$51.7 million to S$53.7 million on the back of increased volumes for the company’s FTSE China A50 futures and Iron Ore products.

Meanwhile, the Securities segment posted a 28.8% dive in revenue from S$69.0 million to S$49.1 million. The poor showing by the segment is mainly due to “low volatility which more than halved to 6% from 14% a year earlier.” Declines in the securities daily average traded value and total traded value also added to the segment’s woes; the two metrics decreased by 27% and 26% year-on-year to S$1.3 billion and S$85.0 billion respectively. Although it wasn’t mentioned in the company’s earnings release, weaker trading activity might have been a result of the October 2013 penny-stock saga involving Blumont Group Ltd (SGX: A33), LionGold Corp Ltd (SGX: A78), and Asiasons Capital Limited (SGX: 5ET).

Elsewhere, as seen from the table above, the Market Data and Connectivity and Issuer Services segments saw their top-lines grow by 1.7% and 20.4%, respectively, while Depository Services saw a small dip of 5.5%.

In particular, Issuer Services grew partly due to revised listing fees. There were 13 new equity listings in the first quarter of FY2015 which raised S$1.9 billion as compared to 11 new listings a year ago which raised S$2.0 billion. Bond listing activity increased significantly as Singapore Exchange’s platform “continued to attract strong interest from debt issuers this past quarter.” Some 131 new bond listings occurred in the quarter, raising S$52.8 billion compared to 98 listings raising S$38.8 billion a year earlier.

Financial position & outlook

Being a company that requires technological advancement to propel growth, Singapore Exchange does not require much capital expenditure (no need for big fancy factories or heavy-duty machinery, for instance). As a result, the company’s balance sheet looks pristine – as of 30 September 2014, Singapore Exchange had S$837 million in cash and cash equivalents with zero debt.

Magnus Bocker, the Chief Executive of Singapore Exchange, gave some updates on the things the company’s doing to improve its Securities business:

“We have therefore continued our efforts to transform the Securities market with the introduction in June of Market Makers and Liquidity Providers, who have added both liquidity and depth to our market. In August, we announced that we will introduce 100-share board lots in January 2015 and that we will in March 2015, implement a minimum trading price of $0.20 for our Mainboard shares.”

In addition, he also expressed confidence in the company’s future and talked about new capabilities the company has acquired:

“The outlook for both the domestic and global markets remains uncertain amid recent turbulence. Against this backdrop, the business environment is challenging. Nevertheless, we are committed to our long-term strategy and will continue to invest in our people, as well as new products, expanded distribution and technology.

We completed the acquisition of the Energy Market Company (EMC) on 1 October, making EMC a wholly-owned subsidiary. This acquisition strengthens our ability to further develop energy-related products.”

The poor showing for the quarter notwithstanding, Singapore Exchange is still rewarding its shareholders with a interim dividend of S$0.04 per share, unchanged from the corresponding period a year ago. At its current price of S$6.86, Singapore Exchange carries a trailing Price/Earnings ratio of 23 and a historical dividend yield of 4.1%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.