EUR 850.00 For Business Accounts Only

Morningstar | Singapore Exchange Wraps up Fiscal 2018 with Solid 4Q Result

Narrow-moat-rated Singapore Exchange, or SGX, wrapped up fiscal 2018 with a solid fourth-quarter result. Fourth-quarter net profit was SGD 83.7 million, slightly lower compared with SGD 85.2 million in the same period last year. This was mainly due to higher staffing costs, which offset higher revenue from both securities and derivatives trading. Fourth-quarter profit tends to be lower against previous quarters in the same year as investments are usually incurred before year-end. Full-year net profit of SGD 363 million is in line with our SGD 366 million forecast. Our forecasts are adjusted slightly lower as we adjust capital expenditure to the top end of guidance. Our fair value is increased to SGD 8.40 on the time value of money and we see the exchange as moderately undervalued, but a larger margin of safety is required. Our 3-star rating is unchanged.

Our thesis is unchanged as the exchange continues to execute its strategy in expanding its derivatives products. This was reflected in the launch of MSCI Japan Index Futures and MSCI Emerging Markets Index Futures. On commodities, management reiterated its focus on freight derivatives products next year, post the acquisition of the Baltic Exchange in 2016. There was little additional commentary on the situation with the Indian exchanges except the earlier announcement of the postponement of the arbitration between the exchanges and a potential collaboration of India products. We see this as a positive step given the negative response by market participants on the Indian capital markets, which included the consideration by MSCI to lower the weighting of Indian equities in its benchmarks. Investments on technology will continue with capital expenditure guided for SGD 60 million to SGD 65 million, in line with this year. Capital expenditure for next year is directed towards a new equity trading engine and improvement in its over-the-counter platform.

Final dividend of SGD 0.15 takes full-year dividend to SGD 0.30, slightly above our SGD 0.29 forecast. The exchange last raised its dividend in fiscal 2013. The focus was on a change in dividend policy to SGD 0.075 per quarter from the current dividend policy of the higher between quarterly dividends of SGD 0.05 per share totaling SGD 0.20, or at least 80% of net profit. Management will consider higher dividends under the new policy in years of healthier profits and noted in the new policy, shareholders will receive larger dividends over the first three quarters of the year. The fourth-quarter dividend is the largest under the current policy. We do not see the changes as significant as the exchange has held its dividend consistently on an absolute basis.