7 Quick Things Investors Should Learn About Singapore Exchange Limited

Singapore Exchange Limited (SGX: S68) is one of the cool companies in Singapore that shares webcasts and/or transcripts of their quarterly earnings presentations (the link for Singapore Exchange is here).

As a bourse operator and more, Singapore Exchange – or more popularly known as SGX – gets its revenue from a number of different sources. This is evident from its many different business segments: Securities; Derivatives; Market Data and Connectivity; Depository Services; Issuer Services; and Others.

Through these different segments, SGX levies fees from the listing of securities, as well as for the clearing of securities trades and derivative contracts. It also earns its keep by providing market data feeds for risk management and back office applications.

You can read more about SGX in here and here.

What’s behind SGX’s results?

Below are seven useful things I learned from listening to SGX’s webcast of its latest presentation for its fiscal second-quarter results for the financial year ending 30 June 2016 (FY2016):

  1. Loh Boon Chye, SGX’s Chief Executive Officer, kicked of the earnings call by saying that it was a challenging quarter for the bourse operator. Later on, Loh commented that the uncertain market sentiment could continue, keeping in mind the change in US interest rates, slower growth from China, and volatile commodity prices. This may have prompted SGX to lower the range for its operating expenses to a band of between S$415 million and S$425 million for FY2016, a decline of S$10 million on both ends from the previous range.
  2. Next up, Chng Lay Chew, SGX’s Chief Financial Officer, went through a summary of the financial figures for the quarter. He said that SGX’s second quarter tends to be seasonally quieter and this was compounded by the generally weaker economic sentiment. The major drawback for the company’s revenue was the 11% fall in the securities daily average traded value (SDAV). This was largely mitigated by higher volumes of institutional securities settlement. This could be a trend to keep an eye on in the next few quarters.
  3. Chng also noted that the Securities business made up 24% of the second quarter’s revenue, a two percentage point drop from where it was a year ago. Later on, he characterized two segments, namely Depository Services and Market Data and Connectivity as the more stable revenue generators among the various business segments. Notably, both segments made up 26% of total revenue for the reporting quarter, an increase from the selfsame figure of 23% in the previous year.
  4. Tan Boon Gin, Chief Regulatory Officer, also gave an update on his area. An example of his update is this: SGX will now issue the “Trade with Caution” alert on a case to case basis, rather than automatically. The alert is expected to be more targeted and will offer more details.
  5. Speaking of regulations, a question was also posed on whether the push for better standards over the past year was timely, given the current market conditions. Loh commented that stakeholders were consulted over several months and it is ongoing. Tan added that it was not a matter of a heavy or light regulatory touch, but rather the right touch. To achieve it, Tan said that it is important to be transparent, to set the right expectations, and to implement a fair process.
  6. Responding to a question on operating margin, Chng answered by reframing the question into a matter of fixed and variable costs. Variable cost, in this case, was around 25% to 30% of total cost. Managing cost is one of SGX management’s focus, given the uncertain environment expected in the second half of the fiscal year.
  7. Talking about attracting new initial public offerings (IPO), Loh said that there are clearly challenges. He felt that SGX can build on its sectorial strengths, citing real estate investment trusts (REIT), healthcare, and consumer sectors as potential areas.

Foolish takeaway

To buy and hold a company’s shares for the long-term also means the need to keep up with developments in the firm.

The access to management teams via webcasts and transcripts gives an investor a fair chance to judge for themselves whether they would like to be invested alongside those teams. It also helps an investor put together a more complete thesis around a company and keep up with developments in its industry.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.