SINGAPORE (Oct 22): Analysts are maintaining their “buy” calls on Singapore Exchange to reflect its growing derivatives business and revised dividend policy

SGX’s 1Q19 earnings of $91 million was up 1% y-o-y, representing 24% of FY19F which RHB Research deems as coming in line with expectations.

SGX reports flat 1Q earnings of $91.1 mil on slight rise in revenue

Although SADV (securities average daily volume) for 1Q19 was down y-o-y from weak equities revenue, RHB expects SADV to rise due to more active equities trading from global geo-political developments.

In addition, 1Q19 derivatives revenue surged 21% y-o-y to a record high of $97.7 million. RHB analyst Leng Seng Choon says China A50 Index Futures was the star performer in 1Q19, recording 40% y-o-y surge in traded volume and contributing 43% share of derivatives sales. He is forecasting FY19 derivatives average daily contract (DADC) of 821,000 vs 1Q19’s 861,000.  

Meanwhile, the board has declared an interim dividend of 7.5 cents payable on Nov 5. This is higher than the 5 cents in 1Q18. Leng says SGX is on track to hit RHB’s target 32-cent dividend for FY19.

“Maintain buy with $8.40 target price, or 21% upside, pegged to 23x FY19F earnings,” says Leng in a Monday report.

CGS-CIMB Securities says SGX’s 1Q19 earnings formed 26% and 24% of house and consensus full-year forecasts.

Analyst Ngoh Yi Sin says a combination of US$ appreciation, steepening yield curve, increased hedging and flight to quality assets, that arose from market volatility and emerging market weakness, supported the 17% spike in derivatives volume to 54.2 million contracts, especially for China A50 and the expanded MSCI Net Total Return index futures suite.

However, during the earnings briefing, few updates for both Nifty and stock connect with Bursa Malaysia.

Still, CGS-CIMB is leaving its “add” rating is unchanged but with lower target price of $7.60, pegged to 22.1 times FY20F earnings which is 0.5 SD below historical mean.

Phillip Securities notes that within the derivatives business, equities and commodities volume spiked 17% y-o-y in volume term, reaching a high of 54 million contracts in
a quarter.

Improvement in volumes came from China A50 futures and FX futures products, which benefited from higher volatility in the underlying market.

However, the average fee per contract was down 6.3% y-o-y to $1.05 due to changes in product mix towards lower yielding products.

Analyst Tin Min Ying also notes no news on the SGX-National Stock Exchange of India arbitration means the situation “remains as a financial risk whose outcome has yet to be set in stone”.

Year to date, shares in SGX are down 7% to $6.95.