LSE Said in Talks With Singapore Exchange on Clearing Platform

 

SGX and Shanghai Futures Exchange to collaborate on commodity derivatives

Singapore Exchange (SGX) and the Shanghai Futures Exchange are cooperating in the development of the commodity derivatives markets in both China and Singapore.

The two exchanges signed a memorandum of understanding on the cooperation in Shanghai, China, on Saturday, 19 October 2013. They will jointly explore areas of cooperation including the development of derivatives for energy, metals, chemicals and commodity indexes. The MOU also covers exchange of ideas and information sharing.

" This cooperation with Singapore Exchange will help the internationalisation of China?s futures market and Shanghai Futures Exchange. It will increase market efficiency, and promote the development of the derivatives markets and the economies of both China and Singapore. We attach great importance to our cooperation with SGX and look forward to mutual benefits in areas such as information exchange, experience sharing and engagement between our executives under the MOU," said Liu Nengyuan



" We are delighted to partner Shanghai Futures Exchange in developing new products and services

 

  (刘 能 元 ), President and CEO of Shanghai Futures Exchange.

 

Many little positives

SGX kicked off its FY14 by beating expectations handsomely. Securities clearing fees rate was higher-than-expected. Listing fees crept up and tech expenses growth was curbed. With new products to cement its position as the derivatives exchange of Asia, we turn positive.

 

1Q14 profit (S$92.3m) was 10% above our expectations and 11% above the Street?s. 1Q was 25% of FY14 estimates, more than we expected as 3Q (Jan-Mar) is typically stronger. The beat came from a variety of factors, which we think can keep up. We raise our FY14-16 EPS by 10-17%, roll forward our DDM-based target price to S$8.69 and upgrade from Underperform to Outperform. Catalysts include new derivatives products gaining traction.

What went right?

1) Securities revenue (38% of the total) came in strong as the clearing rate rose to 3.2bp (vs. average of 2.9bp). The higher rate was due to a low proportion of capped trades as retail activity rose and institutional trades shifted to a more diversified pool of smaller stocks. Although the 3.2bp rate is a little high and will recede, the focus on smaller names in Singapore means that the clearing rate should be higher than before.

  2) Listing fees (6% of total) crept up. This was due to a phased increase of listing fees and more rights and bonds issuances. The full effect of the fees hike is yet to be felt.

  3) Technology expenses did not rise as guided. SGX has guided for a rise in costs in FY14, but we think the original cost guidance was too high.

Earnings drivers in 2H14

We believe there are two key earnings catalysts to look for in 2H14-FY15. The first is the increase in listing fees which will come into full effect in 2H14. The second is the launch of new derivative products (Thai and the Philippines index futures) and further traction in the derivative space.

Our favourite: derivatives

 

Interestingly, derivative open interest rose 6% qoq in a quarter where volumes fell 16%. As products come on and add to client stickiness, there are clear signs that SGX is becoming the derivatives exchange of choice in Asia. We believe that is the key reason to buy SGX.



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17 October 2013

SGX reports first-quarter net profit of $92 million

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? Operating profit: $107 million, up 21%

? Net profit: $92 million, up 24%

? Earnings per share: 8.6 cents, up 24%

? Interim dividend per share: 4.0 cents

 

 

For the full SGX Financial Statements announcement, please visit www.sgx.com.

Revenue: $184 million, up 15% from a year earlier