SGX surprises with higher Q4 dividend on strong set of results

Singapore

THE Singapore Exchange (SGX) on Thursday surprised with a proposed final quarterly dividend of 8.0 cents per share, up from 7.5 cents a year ago, on a strong set of results. Chief executive officer Loh Boon Chye reiterated the aim to pay a growing and sustainable dividend, with the annualised dividend for fiscal year 2021 seen at 32 Singapore cents per share.

On lingering concerns that MSCI Inc will migrate licensing for derivatives products on a host of gauges to Hong Kong when its contract with SGX expires next year, Mr Loh promised: "We will also have a new and expanded suite of derivatives products, well ahead of the expiry of our non-Singapore MSCI product licences in February 2021."

For the fiscal year ended June 30, 2020, SGX's net profit grew 20.7 per cent year on year to S$471.8 million, exceeding analysts' average forecast of about S$455.3 million. Revenue climbed passed S$1 billion to reach S$1.05 billion, up 16 per cent from a year earlier, making it the highest since its listing. Total FY2020 dividend will be 30.5 cents per share.

For the fourth quarter, SGX's net profit grew 16.6 per cent to S$121.1 million, while revenue grew 12.2 per cent to S$278.4 million.

Analysts were looking out for SGX's full year dividend as a signal to how it saw market challenges. Most were expecting it to keep to its base commitment of 30 cents for the full year, or 7.5 cents a quarter.

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The final quarterly dividend of 8.0 cents per share will be payable on Oct 9, 2020. Barring unforeseen circumstances, the annualised quarterly dividend going forward will be 32 cents per share, an increase of 7 per cent.

"It is a strong set of results, with growth of double digits in all business lines. Our efforts to expand internationally with presence into the US is beginning to show new client acquisitions, and more importantly, cross selling to our clients," said Mr Loh at a media and analysts call.

The acquisitions of BidFX, a cloud-based trading platform for currencies, and Scientific Beta, an independent index provider, have put SGX in a stronger position that will allow it to propel its business in currencies and indices on a bigger scale, Mr Loh added. Future acquisitions will emphasise SGX's multi-asset classes.

"FX being a global business is attractive to us, but we can also build through BidFX. Getting closer to our customers is another area we will look at,'' he said.

In the second half of FY2020, heightened volatility in global markets saw SGX's customers intensify their risk management and investment activities on the exchange.

FICC revenue - comprising fixed income as well as currencies and commodities - derivatives revenues - rose 23 per cent to S$171.4 million and accounted for 16 per cent of total revenue. This was mainly from higher currencies and commodities - derivatives revenue, which rose 25 per cent to S$158.7 million. Revenue from trading and clearing revenue rose 27 per cent to S$108 million. Commodities futures volumes increased 22 per cent, driven primarily by higher volumes in iron ore derivatives contracts.

Equities revenue rose 14 per cent to S$759.7 million, accounting for 72 per cent of total revenue. Its cash equities revenue rose 19 per cent to S$399.3 million. There were 10 new equity listings which raised S$2.3 billion, compared to 20 new equity listings raising S$1.7 billion a year ago. Secondary equity funds raised were S$16.5 billion. Daily average traded value (DAV) rose 26 per cent to S$1.32 billion.

Equities - derivatives revenue increased 8 per cent to to S$360.4 million. Higher volumes were seen in MSCI Singapore, Nikkei 225, Nifty 50, and MSCI Taiwan index futures contracts, which partially offset lower volumes in its FTSE China A50 futures contract.

Data, Connectivity and Indices revenue increased 19 per cent to S$121.6 million, mainly due to the consolidation of revenues from Scientific Beta it acquired in January.

On the outlook for FY2021, Mr Loh said market activity could ease following heightened volumes in the second half of FY2020.

"However, asset prices have recovered from recent lows, and a prolonged low interest rate environment may prompt investors to turn to capital markets for alternative returns. Risk management activities could grow from continued uncertainty as geopolitical tensions between US and China escalate, and global economies recover from the Covid-19 pandemic at differing pace. More than ever, we see clients turning to SGX to manage idiosyncratic Asian risks."

Total expense for FY2021 is projected to be between S$535 million and S$545 million, while capital expenditure is projected to be between S$55 million and S$60 million.