Singapore Exchange Readies Itself for Further Growth: 5 Highlights from Its Latest Earnings

Singapore Exchange Limited (SGX: S68), or SGX, had a busy 2021.

The blue-chip exchange operator broadened its suite of products by announcing a slew of different tools to help money managers better manage their portfolios.

Some examples include the world’s first ESG REIT derivatives and new forward freight agreements and futures contracts for liquified natural gas vessels.

The bourse operator has also tied up with partners such as the New Zealand Exchange (NZE) and the Stock Exchange of Thailand (SET) to broaden investors’ access to different types of products and securities.

SGX’s latest fiscal 2022 first half (1H2022) earnings report has highlighted these initiatives and more as the group moves forward on its plan to build a multi-asset exchange.

Here are five other highlights from its latest financial results.

1. A slight dip in net profit

SGX reported revenue of S$522 million for 1H2022, comparable to the year before.

Net profit, however, fell by 9% year on year to S$219 million due to higher expenses incurred. Expenses increased by 6% year on year to S$262 million.

However, if SGX’s two key acquisitions of Scientific Beta and BidFX are excluded, expenses would have risen by 5% year on year.

A key reason for the flat year on year revenue was declining treasury income due to low interest rates.

Treasury income more than halved year on year to S$21 million for 1H2022 and if its effects are excluded, revenue would have increased by 6% year on year.

With interest rates poised to rise in the coming months, CFO Ng Yao Loong expressed confidence that treasury income will improve by the end of the calendar year, though there will be an initial lag effect before this can be seen.

An interim quarterly dividend of S$0.08 has been declared, unchanged from 1H2021.

2. An improvement in equity listings

SGX enjoyed strong momentum in fundraising for 1H2022.

IPOs raised a total of S$1.3 billion during that period, more than the S$1 billion raised during the whole of FY2021.

This was due to the successful listing of large REITs such as Daiwa House Logistics Trust (SGX: DHLU) and Digital Core REIT (SGX: DCRU).

The local exchange also saw the inaugural listing of three special purpose acquisition companies, or SPACs, that helped to raise S$500 million in total.

SGX CEO Loh Boon Chye hopes that securities trading volume will be boosted when the SPACs undergo business combinations, thus benefiting the equities division’s revenue.

3. Broadening its product suite

The availability of a wide spectrum of products and services is in line with SGX’s aim to become an effective multi-asset exchange as highlighted in last year’s Analyst Day.

For currencies, SGX offers the USD/CHN futures that have seen open interest rise from US$18.5 billion to US$20.6 million in 1H2022.

The group has also set up its foreign exchange (FX) Electronic Communication Network (ECN) which went live in November last year.

This move, along with its MaxxTrader acquisition, will set it up to tap different segments for FX.

Under fixed income, the assets under management (AUM) for the largest pure Chinese government bond exchange-traded fund (ETF) has also doubled from US$705 million in September 2020 to US$1.46 billion in January this year.

4. Expanding its market reach

Besides the aforementioned tie-ups with NZE and SET, SGX has also created an ETF link between itself and Shenzhen Stock Exchange (SZSE).

The group is also looking forward to the NSE IFSC-SGX Connect whereby investors can gain access to Nifty products through the link with Gift City in India. CEO Loh has confirmed that it will be launching this calendar year.

These moves have the effect of broadening SGX’s reach into different exchanges around the world, and also increasing the investment options for its customers.

5. Cross-selling opportunities

Source: Singapore Exchange Presentation Slides

Finally, SGX is planning to increase its cross-selling opportunities through its current setup of six divisions.

The diagram above shows SGX’s six pillars anchored by its recent acquisitions such as MaxxTrader and Scientific Beta, along with new initiatives such as Climate Impact X, a carbon credits trading marketplace in collaboration with DBS Group (SGX: D05) and Temasek Holdings.

The intention is for existing clients to use SGX’s other platforms to provide different functionality to suit each client’s investment objectives.

Get Smart: Tapping on debt for growth

SGX’s many strategic initiatives and collaborations require a gestation period before they bear fruit.

Meanwhile, the group has been active in acquisitions and growth investments and has spent around S$1 billion over the last two years.

Gross debt to EBITDA (earnings before interest, taxes, depreciation and amortisation) stood at 1.4 times as of 1H2022, but CFO Ng has reiterated that this ratio can go up to two times.

This means that SGX still has room to tap on debt to grow further in the year ahead.

Investors should sit tight as the bourse operator unveils more initiatives to further diversify its revenue streams.

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Disclaimer: Royston Yang owns shares of Singapore Exchange Limited and DBS Group.

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