Yesterday, Singapore Exchange Limited (SGX: S68) released its third-quarter 2019 earnings update for the fiscal year ended 30 June 2019. Singapore Exchange, or SGX, is Singapore’s sole stock exchange, and its business is divided into three main business units: Equities and Fixed Income; Derivatives; and Market Data and Connectivity.
Here are seven highlights from SGX’s latest 3Q 2019 earnings update.
1. Total operating revenue increased by 3% year on year from S$222.2 million to S$228.8 million, driven mainly by growth in derivatives volumes. Revenue from derivatives jumped 32% year on year to S$119 million, but this was offset by a weaker performance in its equities and fixed income division, which saw revenue fall by 23% year on year to S$83.6 million.
2. Derivatives volume increased by 12% year on year to 60.2 million units from 53.5 million units, while the total traded volume of securities declined by 40% year on year from 129 billion units to 77 billion units.
3. Derivatives accounted for 52% of total operating revenue, up from 41% in the third quarter of fiscal year 2018, thanks to the improved performance of the derivatives division. The equities and fixed income division saw its share of total operating revenue fall from 49% to 37% in the current quarter, and this reflects the increasing contribution of derivatives revenue to SGX’s sales mix.
4. Operating profit remained relatively flat year on year at S$118.2 million, while net profit declined by 1% year on year because of slightly higher taxes. Operating profit margin remained healthy at 52%, which was higher than the 50% threshold set by SGX management. Return on equity remained flat at 37%, and it was slightly down from 39% last quarter.
Source: SGX 3Q 2019 Analyst Presentation Slides
5. SGX maintained a clean balance sheet with zero debt and a cash balance of S$639.2 million as of 31 March 2019. Free-cash-flow generation remains strong at S$96.2 million, with operating cash inflows of S$108.3 million and capital expenditure of just S$12.1 million. S$29.4 million (US$25 million) was spent on acquiring 20% of BidFX (announced in March) in order to gain access to global foreign exchange markets.
6. The bourse operator declared an interim dividend of 7.5 Singapore cents, putting it on track to pay out a total of 30 Singapore cents for the fiscal year ended 30 June 2019. Trailing-12-month earnings per share amounted to 34.6 Singapore cents, putting the dividend payout ratio at around 86.7%. Based on a closing price of S$7.26 as at 25 April 2019, the trailing dividend yield stood at 4.1%.
7. Loh Boon Chye, CEO of SGX, said of SGX’s future:
“Our performance is on track, with FX starting to emerge as a promising growth pillar. Our derivatives business remains strong, as we are the only exchange that provides comprehensive access to Asian markets across asset classes. Our innovative derivatives products will open up opportunities to capture new revenue streams in the coming years. We also anticipate an improvement in our securities business. The recent halt in interest rate hikes will benefit equities markets, particularly our REIT sector.”
SGX is continuing to build up various revenue sources in a bid to diversify away from equities trading, which has seen volumes falling year on year. The group invested in BidFX to strengthen its foreign exchange service proposition to the market and also expanded its Asia-equities derivatives to service global institutional clients.
SGX is also expanding its range of daily leverage certificates (DLC) to include more Singapore and Hong Kong companies. In order to offer market participants wider investment opportunities, SGX plans to introduce DLCs in other geographies in calendar year 2019. In the coming weeks, an innovative new asset class, Asia’s first derivatives based on Nikkei 225 implied equity repo, will be introduced. These new derivatives will address risk-management demands from Asia’s largest securities financing market.
CEO Loh mentioned during the analyst briefing that he was optimistic about the equities business performing better in the coming months due to more interest in capital raising. He is also expecting three to four Mainboard IPOs to come through (the last Mainboard IPO was back in July 2018).
With no intention of slowing down, it looks like SGX is poised to grow its derivatives and foreign exchange volumes even further in the remainder of FY 2019 and beyond.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore recommends shares of Singapore Exchange Limited. Motley Fool Singapore contributor Royston Yang owns shares in Singapore Exchange.