Singapore Exchange - DBS Research 2022-08-19: FY22 Revenue & Net Profit Largely In Line; Awaiting Catalysts

• Singapore Exchange (SGX) reported its highest revenue since listing, of S$1,099m (+4% growth y-o-y), driven by higher volumes and fees. Excluding treasury income, total revenue came in at S$1,050m (+7% growth y-o-y).
• Full-year expenses were up 7% y-o-y to S$562m on higher staff costs, system maintenance and network charges, royalties, etc. Excluding MaxxTrader and the one-off government job support scheme in FY21, total expenses only grew by 3% y-o-y.
• Net profit rose 1% y-o-y to S$451m, largely in line with both the consensus and our estimate.
• A final quarterly dividend of S$0.08 per share was declared, bringing SGX's total dividend for FY22 to S$0.32.

Mixed performance across asset classes.

• Cash equities trading and clearing revenue fell 9% y-o-y to S$209.7m, as the Securities Daily Average Value (SDAV) declined 6% y-o-y, to S$1.27bn, on the back of lower average clearing fees of 2.62bps (FY21: 2.73bps) due to higher participation from market makers.
• Equity derivative revenues increased 8% y-o-y to S$310.4m on higher trading and clearing revenue, partially offset by treasury and other revenue. Trading and clearing revenue grew 22% y-o-y to S$281.9m, mainly due to higher average fees and volumes from SGX FTSE China A50 and SGX Nifty 50 Index futures.
• FICC revenue increased 19% y-o-y to S$252.7m on firm growth from currencies and commodities that offset the decline in fixed income revenue. Trading and clearing revenue from currencies and commodities grew mainly due to increased volumes in derivatives and higher contribution from OTC FX.
• Average fees per contract for equity, currency, and commodity derivatives increased to S$1.51 (FY21: S$1.34).
• Data, Connectivity, and Indices (DCI) revenue grew 3% y-o-y to S$147.4m on higher data subscriptions and an increase in subscription to co-location services. This segment makes up 13% of total revenue.

SGX Management’s Outlook.

• SGXs management expects medium-term revenue growth to remain in the high single-digit range, capitalising on its multi-asset platform to mitigate the market cyclicality. FICC revenue is poised to grow in the mid-teen range, while the OTC FX business remains on track for the S$100bn ADV target. Treasury income is believed to have bottomed out, and its recovery will help boost the business.

SGX - Valuation and recommendation

• Maintain HOLD recommendation on SGX and unchanged target price of S$10.20, representing a ~23x one-year forward P/E, which is ~0.5 standard deviation above its 5-year historical mean. Our target price is based on the dividend discount model (k=7%, g=3%, ROE=37%).