+ FY17 Listing revenue up 6% to S$49.4mn due to a higher number of new bond listings. FY17 had 819 bond listings raising S$384.7bn compared to 349 listings raising S$172.0bn in FY16.
+ FY17 Market Data and Connectivity revenue up 7% to S$93.2mn, accounting for 12% of total revenue. The increase is due to higher reported data usage for trading, risk and other back office applications and also from continued growth of SGX’s colocation services business.
+ Flat Jaw. Revenue and Expenses were down 2%, an improvement of -4% in FY16. However, excluding the Baltic acquisition costs, expenses would have been 5% thus translating to a positive jaw of 3%.
– Securities average clearing fee declined. FY17 average clearing fee of 2.82 basis points was lower than FY16’s 2.90 basis points. This was due to increase in trading of warrants and ETFs. We estimate that the percentage volume of warrants and ETFs have increased from 2% in 2016 to 5% in 2017.
– Weak total derivatives volume. The full year decline was due to weakness in China A50 Index Futures and Nikkei 225 Index Futures volume. A significant reason for lower volumes in the equity index futures are the low volatility in the markets and regulatory limits imposed by regulators in onshore Chinese markets that led to similar declines in offshore activity.
We are expecting a flat SDAV FY18e of around S$1.08 (-3.6% YoY). A contributing factor to softer volumes will be the less volatile yield play stocks that are dominating the listings on the SGX. FY18e operating expense is expected to be in the range of S$425mn to S$435mn (FY17: S$399mn). Our forecast for FY18e total derivatives volume is 180mn contracts compared to 165mn contracts in FY17.
Upgrade Accumulate with higher TP of S$7.63 as we roll over into FY18e estimates (previous TP of S$7.45).