SINGAPORE (Jan 23): Phillip Capital is recommending investors "accumulate" shares of Singapore Exchange.
This is came on the back of a second quarter results which saw strong volume for equities, forex and commodity derivatives despite a weak trading environment globally.
"2Q18 PATMI was in line with our estimates," says analyst Jeremy Teong in a Monday report.
In 2Q18, derivatives revenue rose 11% y-o-y to $83.3 million, contributing 41% of total revenue. Despite a weak trading environment globally, Teong says SGX managed to grow its derivatives revenue, thanks to stronger flows into Asian emerging markets in which SGX is the gateway.
Listing revenue rose 3% y-o-y to $12.4 million due to a higher number of new bond listings. 2Q18 had 289 bond listings raising $103.5 billion compared to 204 bond listings raising $89 billion in 2Q17. Among them, SGX saw the first listing of Indonesian bonds aka Komodo bonds in the quarter.
Market data and connectivity revenue rose 4% y-o-y to $24.2 million, accounting for 12% of total revenue. The increase is due to higher reported data usage and from continued growth of SGX’s co-location services business.
As for negatives, Teong notes securities revenue was lower even as SDAV rose because of declining average clearing fees. In 2Q18, average clearing fee for equities came in at 2.93 bps, lower than 2Q17’s 2.97 bps.
The average-clearing fee for other products was 0.51bps, lower than 2Q17’s 0.86bps. The lower average clearing fee was due to increase in trading of warrants, ETFs and Daily Leveraged Certificates (DLCs) and higher trading volumes by market makers & liquidity providers (MMLP) as these market participants generally pay lower clearing fees.
"Maintain 'accumulate' with higher target price of $9.00 -- from $8.31 previously -- based on DCF," concludes Teong.
As at 11.36am, shares in SGX are up 13 cents at $8.48.
