SINGAPORE (Sept 16): With an overall score of 40.41 points, the Singapore Exchange has emerged as the finance sector winner of The Edge Singapore’s Billion Dollar Club award. The stock exchange operator beat the three local banks — DBS Group Holdings, United Overseas Bank (UOB) and Oversea-Chinese Banking Corp (OCBC) — which came in at second, third and fourth places, respectively. It also outperformed Hong Leong Finance, Jardine Strategic Holdings, Great Eastern Holdings and Pacific Century Regional Developments.
SGX’s pole position was driven largely by its high return on equity over the last three years ended March. SGX recorded a weighted ROE of 34.24% that led it to score the full 20 points for that particular metric — the only company in the BDC finance sector to do so. The exchange’s strong performance in this year’s BDC scoring was also underpinned by its commitment to environmental, social and governance issues; it led the sector with an ESG score of 19.58 points.
Indeed, the initiatives taken by SGX to reduce its environmental footprint shows that it is serious about its environmental responsibility. In FY2018, the company observed Earth Hour to signal its commitment to reduce energy consumption. It also organised a Plant-A-Tree programme to encourage staff to do their part for the environment. To minimise energy wastage, motion-activated light sensors were installed in all of the company’s meeting rooms.
SGX also encouraged shareholders to opt for the electronic transmission of shareholder documents. Just like the majority of the listed companies here, SGX has ceased mailing out CDs for its annual report and redirected shareholders to its website for the same information, although physical copies will still be made available on request.
SGX did well in various other aspects of ESG. For example, it is a diverse organisation, with a third of its board of directors being females. There had been no reports of discrimination as well. Neither were there any whistle-blowing reports in its FY2018 — the most recent financial year in which metrics were taken into account for the BDC 2019.
However, despite its high scores in ROE and ESG, the exchange’s profit after tax (PAT) grew at a compound annual growth rate (CAGR) of just 1.4% in the three-year period of evaluation. The company’s muted bottom-line growth can be attributed to its declining equities and fixed-income business on the back of a lacklustre stock market.
On the other hand, SGX’s derivatives business has grown rapidly, driven by increasing activity by market participants who want to hedge risk against market volatility. SGX’s revenue from derivatives has overtaken that from the equities and fixed-income business to become the biggest contributor to the company’s total revenue.
Some analysts warn that the derivatives business is going to face tougher competition. According to Credit Suisse, SGX’s derivatives volume — largely from its China A50 contracts — could be at risk from the introduction of the Hong Kong Stock Exchange’s (HKEX) China derivatives. The research house has forecast a 10% drop in China A50 volume over the next two years. “We believe this will be at risk due to competition from HKEX when it launches MSCI China equity derivatives (likely to be only after Nov 19),” analyst Rikin Shah writes in a July 10 note.
In the three years taken into consideration for this year’s BDC ranking, the shift in SGX’s revenue mix did not convince many investors. The company’s share price has recorded a negative CAGR of 2.8% over this period.
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However, SGX seems to have gained stronger momentum in the most recent financial year ended June 30, which was not taken into account for this year’s BDC rankings. Earnings grew 8% y-o-y to $391 million on the back of an 8% y-o-y increase in revenue to $910 million. The earnings were the highest in 11 years and the revenue was the highest since SGX was listed in 2000.
DBS Group Holdings, meanwhile, had the highest three-year shareholders’ return among the various financial services institutions. It recorded a 17.9% CAGR over the period. The bank, Southeast Asia’s largest, topped the profit growth category too. Its bottom line CAGR over the three years was 7.8%. From $4.45 billion in FY2015, DBS’s earnings surged to $5.58 billion in FY2018, with growth driven by both fee and non-fee income.
For 2Q ended June 30, DBS reported record earnings of $1.6 billion, up 20% y-o-y. With a market capitalisation of more than $60 billion, DBS has overtaken Singapore Telecommunications as the most valuable Singapore company listed on SGX.
The bank, under CEO Piyush Gupta, has been actively making use of technology to better run its operations. In the cover of a recent annual report, the bank calls itself the “Digital Bank of Singapore”, a play on its former name, Development Bank of Singapore.
Gupta notes that despite heightened economic uncertainty and geopolitical tensions, the bank has delivered yet another record performance. “The results reflect the strengths of an entrenched broad-based franchise that is well placed to nimbly navigate market volatility and capture opportunities as they arise.”
To be sure, the other two local banks, UOB and OCBC, are high scorers within the finance sector as well, although they did not win in any specific category. They had the third- and fourth-highest overall scores, behind SGX and DBS. UOB’s ESG score of 18.13 points puts it just a whisker behind DBS’s 18.22 points, while OCBC’s ROE score of 7.11 points was higher than DBS’s and UOB’s 7.08 and 6.83 points respectively. Interestingly, Great Eastern Holdings, OCBC’s majority-controlled but separately listed insurance arm, was the only company other than SGX to beat OCBC in ROE.
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*For the full list, go to bdc.theedgesingapore.com
CENTURION CLUB: FINANCE
ValueMax bags award as expansion spurs growth
Pawnbrokers were some of the best-performing companies in the finance sector in The Edge Singapore’s Centurion Club in 2019. With an overall score of 39.02 points, ValueMax Group beat eight other contenders — including insurers, financial and investment services providers and brokerages — to emerge top.
Its peer and rival Maxi-Cash Financial Services Corp came in at third place with an overall score of 28.21 points.
ValueMax’s pole position was underpinned by its strong performance in profitability and return on equity over the last three years ended March. In particular, its profit after tax compound annual growth rate was 26.4% and its ROE CAGR was 10.7% over the period. This enabled it to obtain the highest PAT score of 26.41 points and highest ROE score of 10.71 points.
However, its shareholders’ return was less stellar. Over the last three years, the stock returned an annualised gain of just 3.2%. The company scored 1.9 points, ranking it fifth.
ValueMax opened its first pawnbroking outlet in 1988 and was listed on the Singapore Exchange in 2013. Much of the company’s growth can be attributed to the opening of new outlets and acquisitions.
Last year, it launched five new pawnbroking and retail outlets in Singapore, bringing the total number of its pawnbroking outlets in the city state to 33. These new outlets were located at Sengkang Square, Yishun Central, Bugis Village, Buangkok and West Mall. The company also has two pawnshops operated by associated and investee companies. In Malaysia, it operates 10 outlets through its associated companies.
In addition to its core pawnbroking business, ValueMax has expanded into moneylending, retail of jewellery and timepieces, as well as gold trading services.
