Singapore Exchange Limited’s Latest Earnings: What Investors Need to Know

Singapore Exchange Limited (SGX: S68) reported its third-quarter earnings for its fiscal year ending 30 June 2016 (FY2016) yesterday. The reporting period was for 1 January 2016 to 31 March 2016.

Singapore Exchange, or SGX for short, is the only stock exchange in Singapore. The company had made changes to its organizational structure at the start of 2016 and currently has three business lines, namely, Equities & Fixed Income, Derivatives, and Market Data & Connectivity. You can catch up with the results from SGX’s previous quarter in here.

Financial highlights

The following’s a rundown on the latest financial figures from SGX:

  1. Quarterly revenue rose 3.3% year-on-year to $205.8 million.
  2. Net profit for the reporting quarter was up 1.1% to $89.2 million. The bottom-line was held back by higher operating expenses.
  3. Subsequently, SGX’s earnings per share (EPS) rose 1% from 8.2 cents in the same quarter a year ago to 8.3 cents
  4. Cash flow from operations came in at $125.4 million for the third-quarter of FY2016 with capital expenditure clocking in at $22.7 million. This gave SGX a healthy positive free cash flow of $102.7 million for the reporting quarter, up 27% from a year ago when free cash flow was ‘just’ S$81 million (S$102.5 million in cash flow from operations and S$21.5 million in capex).
  5. As of 31 March 2016, the firm had $764.5 million in cash and equivalents and no debt. SGX’s balance sheet has improved from a year ago when there was S$714 million in cash and equivalents and zero debt.

In all, SGX’s revenue and profit had inched up for the reporting quarter. The bourse operator managed to produce positive and growing free cash flow and ended the reporting quarter with a debt-free balance sheet.

The board of directors had proposed a dividend of S$0.05 per share, up 20% from S$0.04 per share in the comparable quarter last year.

Operational highlights

Revenue growth came from all three major segments. The Equity & Fixed Income segment saw quarterly revenue tick up 3.5% year-on-year to S$102 million. Meanwhile, the Derivatives segment’s revenue grew by 3.2% to S$82.2 million. Elsewhere, Market Data & Connectivity experienced a slight 2.6% increase in revenue to S$21.6 million.

For the reporting quarter, SGX saw the securities total traded value grow by 5% from the same period a year ago to reach S$75 billion. Mainboard stocks accounted for all the growth as the total traded value there climbed by 6% year-on-year to S$71 billion. The total number of securities traded also rose by 11% from a year ago to hit 98 billion shares.

The Derivatives segment reported a 24% year-on-year spike in total derivatives volume from 39.2 million to 48.7 million. The biggest volume contributor is the SGX FTSE China A50 Index futures, which grew by 19% to 21.25 million contracts. The highest percentage-growth came from Iron Ore futures, which had a 195% spike to 3.05 million contracts.

SGX’s chief executive, Loh Boon Chye, had given a summary of SGX’s results in the quarter in the earnings release:

“Our results this quarter showed growth across our three business lines of Equities and Fixed Income, Derivatives and Market Data and Connectivity. This reflected higher levels of market activities as market participants react and adjust to the changes in benchmark interest rates and volatile commodity prices.”

He also had some comments to share on the outlook for SGX:

“As we continue to execute on our growth strategy, we will focus on managing costs, against the backdrop of increasing competition and volatile global market conditions. We expect FY2016 operating expenses to come in at the lower end of our previously announced guidance of between $415 million and $425 million.”

SGX added that it “expect[s] competition to increase and global market conditions to remain volatile.”

Foolish summary

As of market close yesterday, SGX traded at a price of $8.05. The bourse operator has a trailing price-to-earnings ratio of 23 at that price, along with a trailing dividend yield of 3.8%.

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Motley Fool Singapore contributor Esjay had contributed to this article.

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.