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Singapore Exchange Limited’s Latest Earnings: Strong Growth Seen

Yesterday evening, Singapore Exchange Limited (SGX: S68) reported its second-quarter earnings update for its fiscal year ending 30 June 2019 (FY2019).

As a recap for context later, Singapore Exchange, or SGX, is Singapore’s sole stock exchange and it divides its business into three main units: Equities and Fixed Income; Derivatives; and Market Data and Connectivity. Here are nine salient points from SGX’s latest earnings update:

1. Total operating revenue for the quarter rose by 9.3% year on year from S$205.0 million to S$224.1 million, underpinned by growth in derivatives volume. Revenue from the Derivatives division increased by an impressive 35.4% year on year from S$83.3 million to S$112.9 million. This was offset by a poorer performance from the Equities and Fixed Income unit, which saw revenue decline by 12.3% from S$97.5 million to S$85.6 million.

2. Derivatives volume increased by 23% from 48.6 million units a year ago to 60 million units. On the other hand, securities total traded volume fell from 122 billion to 97 billion, a 21% decline.

3. With the sharp increase in revenue from the Derivatives division, this division made up 50.4% of SGX’s total operating revenue in the reporting quarter, up from 40.6% in the second quarter of FY2018. The Equities and Fixed income division contributed 38.2% to the company’s total operating revenue, down from 47.6% a year ago.

4. Operating expenses rose at a lower rate compared to operating revenue, increasing by 8.3% year on year to S$110.5 million. The main reason for the rise in expenses was a 7.1% increase in staff costs due to annual staff salary increments, and also a higher headcount. SGX’s average headcount for the reporting quarter was 817, compared to 787 a year ago.

5. Operating profit jumped by 10.4% year on year to S$113.7 million. Due to a 14.3% increase in tax expenses, SGX’s net profit after tax rose by a smaller percentage of 9.2% to S$96.5 million. SGX’s operating profit margin improved from 50.2% a year ago to 50.7%, but the net profit margin stayed flat at 43.1%.

6. SGX continued to maintain a debt-free balance sheet, with a cash balance of S$680.2 million as of 31 December 2018.

7. Cash flow continued to remain strong in the reporting quarter with operating cash flow of S$78.2 million, up 3.0% from a year ago. Capital expenditure for the reporting quarter fell from S$14.2 million in FY2018’s second quarter to S$13.7 million, thus free cash flow increased by 4.4% from S$61.7 million last year to S$64.4 million.

8. SGX has declared a second-quarter interim dividend of S$0.075 per share, up from S$0.05 per share a year ago. The company is on track to pay a total of S$0.30 per share in dividends for FY2019. At SGX’s share price of S$7.50 as of 24 January 2019, this translates into a trailing dividend yield of exactly 4.0%.

9. On SGX’s prospects, CEO Loh Boon Chye had this to say:

“Over the past six months, we have delivered on what we set out to do in FY2019, including widening our product offering across asset classes, increasing our client engagement overseas and strengthening our partnerships across markets. We are on a strong growth momentum and our financial performance underscores our resilience as a multi-asset exchange.”

SGX has gradually built up its Derivatives business over the years and it now accounts for half of the company’s revenue. The division is showing good growth momentum in terms of both volume and value and it helped to more than offset the decline in revenue from the lower securities daily average volumes traded.

With the introduction of SGX’s new daily leverage certificates, this may help to spur growth in the Equities and Fixed Income division. With the Derivatives division hitting a second consecutive quarter of record performance, SGX seems to have attracted good demand for its futures and derivatives products, and this looks set to continue in the coming quarters.

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in Singapore Exchange Limited.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing does not own shares in any companies mentioned. The Motley Fool Singapore has a recommendation on Singapore Exchange.