Excerpts from UOBKayHian report
Singapore Exchange (SGX: S68)
- For FY24, Singapore Exchange reported higher revenue (+3.1% yoy) and adjusted PATMI (+4.5% yoy), driven by the FICC and platform segments but offset by the cash equities and equities derivatives segments.
- With a lack of near-term catalysts, SGX is fairly valued at current price levels, in our view.
Maintain HOLD but with a higher target price of S$10.65 (S$10.13 previously).
Stable performance in line
Singapore Exchange (SGX) reported higher FY24 revenue (+3.1% yoy), EBITDA (+2.1% yoy) and headline PATMI (+4.7% yoy), forming 100%/101%/102% of our full-year forecasts respectively.
The higher revenue was driven by stronger revenue contributions from the fixed income, currencies, commodities (FICC) (+22.3% yoy) and platform and others (platform) (+5.6% yoy) segments, offset by the cash equities (-2.1% yoy) and equities derivatives segments (-7.5% yoy).
FY24 EBITDA (-0.6ppt yoy) and operating margins (-0.1ppt yoy) were slightly softer yoy, dragged by higher operating expenses to support the group’s fast-growing over-the-counter forex (OTC FX) business and increased contributions from the lower-margin FICC segment.
Similar to FY24, 2HFY24 overall revenue (+2.6% yoy) and adjusted PATMI (+3.0% yoy) was also higher yoy, driven by the FICC, cash equities and platform segments.
Slightly higher dividend
SGX reported a final quarterly dividend of 9.0 S cents/share, taking total FY24 dividends to 34.5 S cents/share (FY23: 32.5 S cents/share). This implies a core PATMI dividend payout ratio of around 70% and dividend yield of around 3.5%.
Management has noted that the group expects to increase its dividends per share in line with its underlying earnings growth and at a mid-single-digit CAGR target in the medium term.
Based on our estimates, this implies FY25-27 dividend payout ratios of around 70-73% and yields of around 3-4%.
Cash equities
Bottomed out. In line with expectations, FY24 segmental revenue fell (-2.1% yoy) as both securities daily average value (SDAV) (-3.9% yoy) and total traded value (-4.2% yoy) moderated lower.
The softer performance was largely due to lower trading and clearing (T&C) revenue (-4.1% yoy) but supported by stable yoy overall clearing fees at 2.49bp.
However, for 2HFY24, overall segmental (+1.4% yoy) and T&C (+6.0% yoy) revenue grew as total traded value (+3.8% yoy) improved.
This is in line with our earlier expectations that revenue from cash equities was likely to bottom out in 1HFY24 at pre-COVID-19 levels and stabilise in 2HFY24.
Moving forward, we reckon that an uncertain macroeconomic outlook, coupled with expected interest rate cuts in FY25, would improve trading velocity, pushing the cash equities segment into revenue and profitability growth.
Equity derivatives
Soft performance. In line with expectations, FY24 segmental revenue fell by 7.5% yoy, dragged by lower T&C revenue (-9.0% yoy) from softer equity derivatives volumes (-7.7% yoy) and lower overall average fee per contract at S$1.54 (FY23: S$1.56).
The underperformance was led by broad-based volume declines across most key contracts such as SGX’s FTSE China A50 Index futures (-3.3% yoy), Japan Nikkei 225 Index futures and options (-22.5% yoy) and GIFT Nifty 50 index futures (-31.1% yoy).
Moving forward, we expect positive total traded volumes growth in FY25 from an increasingly uncertain macroeconomic outlook that would likely boost investor risk-on sentiment.
Valuation/Recommendation
Maintain HOLD with a slightly higher PE-based target price of S$10.65 (S$10.13 previously), pegged to the same 21x PE multiple, -0.5SD to SGX’s historical forward mean, to FY25 earnings (FY24 earnings previously) of S$555.9m.
Despite robust growth from the FICC segment, we reckon that there are no near-term catalysts to justify a higher valuation. Higher treasury income from interest rate hikes has already started coming through, which we reckon has already been priced in.
Despite a moderate yield of about 3.7%, we like still SGX for its resilient business model that benefits from the global economic uncertainty but recommend waiting for better entry points.
You can find the full report here and the company website here.Â
