SGX Q3 profit inches up to S$89.2m; revenue up 3%

Singapore

SINGAPORE Exchange (SGX) posted a slight increase in net profit during its third fiscal quarter as higher market volatility lifted revenues but competition affected margins for some products.

Net profit increased by 1.1 per cent to S$89.2 million, or 8.3 Singapore cents per share, for the three months ended March. Operating revenue rose 3 per cent to S$206 million.

For the nine-month period, net profit grew by 7.8 per cent to S$272.2 million, or 25.4 Singapore cents per share.

SGX has declared a dividend of five Singapore cents per share for the quarter.

SGX chief executive Loh Boon Chye said: "Our results this quarter showed growth across our three business lines of equities and fixed income, derivatives and market data and connectivity. This reflected higher levels of market activities as market participants react and adjust to the changes in benchmark interest rates and volatile commodity prices."

Derivatives volumes jumped 24 per cent to 49 million contracts during the quarter, but derivatives revenue increased by just 3.2 per cent to S$82.2 million. That was partly due to lower pricing and sweetened incentives for its iron ore contracts - iron ore futures volumes tripled to 3.1 million contracts in the third quarter - in the face of steeper competition.

Securities trading and clearing revenue increased by 4 per cent to S$54.8 million as daily average traded value of securities rose 5 per cent to S$1.22 billion.

Revenue from issuer services, however, declined by 5 per cent to S$18.7 million as bond listings slowed to S$38 billion from a year-ago S$46.5 billion.

Analysts at a results briefing were curious about the impact of competition on SGX's derivatives business. Chicago's CME Group has been making inroads in the iron ore derivatives space, in which SGX holds a dominant spot.

Mr Loh explained that SGX's sacrifice on margins was a move with longer-term prospects in mind.

"We take a much-longer-term view," he explained. "If you look at the ratio of derivatives in iron ore versus the physical trade - one time, roughly. Versus 30 times in oil. And the overall Chinese suite of products and our view on how iron ore could grow, it's something where we want to maintain leadership. And I think we have seen how we have maintained discipline around product launches and getting liquidity around it. It will take time, but we are there for the long game in iron ore."

SGX head of derivatives Mike Syn also expressed optimism about the May launch of MSCI China Free Index futures.

Part of SGX's pitch on the product is that it allows Asia time-zone trading of an index with components that are mostly priced in the United States.

"We believe Chinese capital markets are one of those global macro markets that deserves to trade 24 hours," Mr Syn added. "We're beginning that journey now. It's fairly early stage, but we have confidence that global institutional investor interest on an all-China benchmark is emerging."

SGX shares closed trading on Wednesday at S$8.05, up three cents.