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Derivatives drive SGX's Q1 net profit up 0.4%, higher interim dividend declared

Its securities business suffers Q1 pullback, but CEO says derivatives momentum could continue

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"Our first-quarter performance demonstrates the diversity and resilience of our multi-asset business." - Loh Boon Chye, SGX CEO

Singapore

THE Singapore Exchange (SGX) on Friday reported a 0.4 per cent increase in its first quarter net profits from a year ago, boosted by a strong derivatives market as its traditional securities business suffered a pullback.

Net profit for the first quarter ended Sept 30 rose to S$91.07 million from S$90.71 million a year ago; operating revenue rose 2.2 per cent to S$208.86 million, from S$204.46 million a year ago.

An interim dividend of 7.5 cents per share is payable on Nov 5. This is up from 5 cents per share a year ago.

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SGX chief executive Loh Boon Chye said: "Our first-quarter performance demonstrates the diversity and resilience of our multi-asset business. We achieved strong record revenues in our derivatives business, while our securities market saw a pullback along with other regional stock markets, amid heightened volatility and emerging market weakness."

He added that during the quarter, SGX made strategic investments in companies that would enable it to expand its fixed income business and pursue the development of its digital marketplace for freight.

Derivatives revenue rose 21 per cent to S$97.7 million, contributing to 47 per cent of total revenue, from 39 per cent a year ago. Equity and commodities revenue grew as total volumes rose 17 per cent to a record of 54.2 million contracts. Average open interest was up 16 per cent on year; FX futures saw continued momentum.

Assuming current market conditions continue, coupled with the launch of new derivative products and higher trading volumes, Mr Loh said he expects the derivatives business to "increase by at least double digits".

Equities and fixed income - comprising issuer services, securities trading & clearing and post trade services - declined 13 per cent to S$86.4 million from S$99.7 million a year ago. They accounted for 41 per cent of total revenue, down from 49 per cent a year ago.

Issuer services revenue fell 12 per cent to S$19.5 million from S$22.1 million a year ago, contributing to 9 per cent of total revenue, down from 11 per cent.

Listing revenue of S$11.1 million is down 14 per cent from S$13.0 million. There were 247 bond listings, down from 347 a year ago. They raised S$91.8 billion, down from S$156.1 billion.

The six new equity listings raised S$0.2 billion. The exchange, which opened its doors to companies with dual-class share structures to list on its main board, said the pipeline for new listings remains healthy, with interest from local and international companies, especially those in property, healthcare and technology.

Securities trading and clearing revenue fell 8 per cent to S$46.9 million, accounting for 22 per cent of total revenue. Securities daily average traded value (SDAV) declined eight per cent to S$1.07 billion.

Post trade services revenue fell 24 per cent to S$20.0 million, accounting for 10 per cent of total revenue. This was mainly due to a decline in subsequent settlement activities and downward re-pricing of SGX's delivery-versus-payment guarantee fee from April 2018.

Contract processing revenue has ceased, as all brokers had migrated to their own back office systems by February this year. SGX expects Phase 2 of its new post trade service to go live by this December.

In line with previous guidance, operating expenses for FY2019 are expected to be between S$445 million and S$455 million. Technology-related capital expenditure is expected to be between S$60 million and S$65 million.

On Friday, SGX ended at S$6.93 a share, down two Singapore cents from Thursday's close.