Singapore Exchange Limited – Dragged down by Treasury Income August 12, 2021 398

PSR Recommendation: NEUTRAL Status: Maintained
Target Price: 11.54
  • FY21 revenue and earnings were below our estimates, at 95% and 93% of our FY21e. Variance came from lower than expected equity and FICC revenue.
  • FICC and DCI grew 30%/4% YoY, led by newly-acquired businesses, BidFX and Scientific Beta, respectively.
  • Excluding treasury income, revenue was up 7% YoY, lifted by commodities trading volume, and higher securities settlement and corporate action revenue.
  • Lower yields dragged down equity derivatives treasury income. Equities – Cash & Derivatives was 15% lower than our 2H21 estimates and 16% lower YoY as equity derivatives volume declined 6%.
  • Maintain NEUTRAL with lower TP of S$11.54, from S$11.95. FY22e earnings reduced by 19.4% to incorporate higher FY22e expense guidance of S$565-575mn. Our TP is pegged to 25x FY22e P/E, +2SD of its 5-year mean.

The Positives

+ New businesses accelerated growth. Newly-acquired BidFX and Scientific Beta contributed S$27mn to 2H21 revenue. Consequently, FICC and DCI grew 30% and 4% YoY respectively to mitigate overall revenue decline. Both businesses are expected to remain growth engines for SGX, with opportunities from cross-selling and new client acquisitions on the back of customer access to an enlarged trading network.

+ Underlying business resilient. Excluding treasury income, revenue grew 7% YoY, lifted by commodities trading volume, securities settlement and corporate action revenue. Treasury and other revenue income dropped as treasury income was affected by lower yields from low interest rates.

The Negatives

– Lower yields drag equity derivatives treasury income. Equities – Cash & Derivatives was 15% lower than our 2H21 estimate and 16% lower YoY as equity derivatives volume declined 6%. This was mitigated by higher fees per contract of S$1.40 in 2H21, 11% higher HoH and in line with our expectations as introductory fees in 1H21 tapered off. 1H21 trading and clearing revenue declined mainly due to introductory fees for its new FTSE Asia expansion suite.

– Lower bond listings and quantums. FICC revenue for FY21 was up 24% YoY, boosted by the consolidation of BidFX which was acquired in July 2020. Excluding BidFX, FICC revenue was 8% lower than our estimate on account of lower bond listings and amounts.


Continued development of multi-assets to anchor long-term growth. SGX remains committed to expanding its suite of products through strategic partnerships and new product development for newly-acquired businesses.

Investing for medium term. SGX has guided for FY22 expenses of S$565-575mn, an 8.6% increase from FY21 at the mid-point. More than 50% of the increase will be for near-term investments. These include setting up FX ECN, climate-related initiatives and continued investments in BidFX and Scientific Beta. We raise FY22e opex by 29.8% to the mid-point of guidance.

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About the author

Profile photo of Terence Chua

Terence Chua
Senior Research Analyst
Phillip Securities Research

Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy- and sell-side. As an institutional fund management analyst, he sat on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018.

He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.

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