Singapore Exchange Ltd
SGX:S68
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Okay, good evening, ladies and gentlemen, everyone here as well as those who have joined us on the webcast. Thank you very much for taking the time to attend our third quarter FY 2018 results briefing. I know it's raining heavy outside, and for those who have made it here, thank you again for that.
Let me begin, I will start off with a presentation on the financial performance. Following that, Boon Chye, our CEO, will provide a business update.
Let me begin with some of our key financial highlights. I'm pleased to report that SGX achieved a set of strong results for the third quarter. Net profit was triple digit, $100 million, up 21% from a year ago, and the highest net profit since third quarter FY 2008.
Our top line revenue increased by 10% to $222 million. This was the highest since our listing.
Equities and Fixed Income as well as our Derivatives businesses recorded higher revenues, whilst revenue from the Market Data and Connectivity business was just marginally lower. Both our securities and derivatives markets experienced higher activity this quarter compared to a year ago.
Securities traded value was up 15% to $90 billion, and derivatives volume was up 34% to 54 million contracts. Expenses increases by 5% to $104 million, with increases in staff cost and volume-related royalty payments.
Earnings per share, as you can see, was $0.094 for the quarter. And the Board of Directors has declared an interim dividend of $0.05 per share, in line with our dividend policy.
On a year-to-date basis, SGX delivered a net profit of $280 million, up 10% year-on-year. Our top line revenue increased 7%, whilst our expenses increased 5%.
This slide shows the quarterly trend for our revenue, expenses, operating profit and net profit for the past 5 quarters. I'll focus on the quarter-on-quarter movement. You can see that our revenues grew 8% or $17 million from $205 million to $222 million. As I mentioned earlier, both our Securities and Derivatives businesses performed well this quarter. Quarterly expenses grew only $2 million or 2% from $102 million to $104 million. These were really increases in our variable costs, with half of that coming from higher royalty payments because of higher volumes in our Derivative business. We continue to be disciplined in our spending.
Operating profit increased 14% to $118 million, and the operating profit margin was 53% for the quarter. Net profit grew 14% versus that a quarter ago.
This next slide is a waterfall shot. It shows where our quarterly -- where the improvements in our quarterly revenues came from on a year-on-year basis. Boon Chye will review each of the 3 main businesses in more detail later on.
Our Equities and Fixed Income business earned revenues of $108 million. This is an increase of 5% a year ago, and this business accounted for 49% of our total revenue. Within EFI, we have Issuer Services, which increased their revenues by 8% to $21 million. Our bond listing business continues to do well. And our new bonds listed increased to 291 for the quarter.
Securities Trading and Clearing revenue increased by 12% to $62 million. This is off the back of higher SDAV, which grew 17%. Total traded value, as I mentioned earlier, grew 15% year-on-year. This reflected, really, the positive market sentiments for the quarter. However, I would like to note that SGX has taken various initiatives to advance our securities market over the last 2 to 3 years, and that has also contributed to this increase in SDAV.
Our average clearing fee declined from 2.8 to 2.71, as our initiatives to increase more liquidity in the market through higher participation from market makers and equity providers led to more volumes from these participants, so that has led to a slight decline in our average fee per contract or average clearing fee.
Post Trade Services, you can see the revenues have declined by $3 million, and this is mainly due to a decline in contract processing revenue. We have discussed this in previous quarters. Our final clearing member migrated to their own systems in February this year, so this revenue line will cease to exist going forward. We do have increases in settlement, instruction fees that will come onstream going forward. However, this will not totally offset it, but it goes somewhat towards mitigating this decline in revenues.
Our Derivative business recorded 20% higher revenue, as total volumes of derivative contracts rose 34%. The blended average fee per contract was lower at $0.0107 -- $1.07 due to a change in the mix of our derivative contracts. You will note also that revenue from collateral, management, licensing and membership rose 31%. That's due to increasing licensing fees as a result of higher derivative volumes as well as higher collateral management as we improved on yields with the increase in our interest rates -- in the interest rate environment. Derivatives accounted for 41% of our total revenues compared to 37% a year ago.
Our Market Data and Connectivity business accounted for 11% of our total revenues and registered a small 2% decline on a year-on-year basis in terms of revenues.
This is a waterfall chart for expenses. I mentioned earlier, expenses increased by 5% to $104 million. If you look at the waterfall chart here, total staff cost increased by $5 million, and this was really due to an increase in our fixed staff cost. We have the annual salary increment and we also have higher provisions for variable staff cost as a result of higher profitability. Our average headcount for the quarter was comparable year-on-year. We have an average of 789 permanent headcount for the quarter. Technology expenses actually declined by $1 million, and this is mainly due to a decline in communication charges in terms of the regular SMR as well as our depreciation expenses that are really comparable on a year-on-year basis.
Processing and royalties, I mentioned earlier, increased $2 million due to the higher royalty payments as a result of the higher derivative volumes.
Professional fees increased by $1 million. You can see that that's essentially to support certain corporate projects that we embarked on.
This final slide shows the key trend of our financial performance and the key financial performance indicators for the past 5 quarters. You'll be pleased to note the better indicators for this past quarter. Operating profit margin, I mentioned earlier, 53%, was actually the highest since the first quarter of 2016. Our ROE remains very high at 37%. And as I mentioned earlier, the Board of Directors have declared an interim dividend of $0.05 per share.
Thank you very much, and I'll pass you on to Boon Chye.
Good evening. I'd like to also extend my appreciation for those of you joining us here and those of you on our webcast. I'll -- just to echo what Chng has mentioned earlier in terms of the results, clearly, a very strong quarter; not only the highest quarterly net profit in the last 10 years, it is also our highest quarterly revenues since our listing in 2000. And in particular, the equity and fixed income quarterly revenue, the highest in the last 3 years. The Derivatives' quarterly revenue was also the highest in the last 2.5 years. After-Business Market Data and Connectivity continues to be a steady contributor to our revenues, making our most top line of $25 million per quarter.
Now let me give you some context of each of the business segment, starting with the equity and fixed income subsegment in terms of the equity listings. Five listings for the quarter and with visibility of the pipeline in the next 3 months will likely to exceed the number of equity listings versus financial year 2017 for the full FY 2018. The funds raised was very robust, $1.8 billion for the quarter versus $0.3 billion, so that's up almost 7x. But I think more interestingly, we continue to add diversity to our listings in terms of sector and geography. For the quarter, we welcome Memories Group, a leading tourism operator in Myanmar. We also had Malaysia's wooden bedroom manufacturer, LY Corporation; a GDR from South Korea mobile lifestyle platform company, Kakao; a FinTech company, Ayondo; and Asia's first outlet mall REIT, Sasseur REIT.
In fixed income listing, we continue to be a leading global bond listing venue in Asia. The number of bonds listed up was up over 50% to 291; and funds raised was strong, up 25% to SGD 126 billion. As of now, we have 3,000 debt securities with an outstanding of over USD 1 trillion from almost 900 issuers across 45 countries in 19 currencies. And also, we're seeing an increase in number of issuers from Latin America.
In Securities Trading and Clearing, a very good quarter. SDAV, up 17% to $1.45 billion. The traded value equities was also up 13%; and other products, up 37%. This increase in activities is a result of the following: One, we've been working with brokers to profile our listed companies; two, increasing awareness and outreach to investors through market information, both covering clients locally and globally through our overseas offices; we have also enhance our liquidity provider program; and fourth, furthering our market makers scheme to have more stocks covered by the market makers.
In Post Trade Services, the settlement revenue was down marginally to $23 million. As Chng has mentioned, all brokers have successfully migrated to their own back-office system by the end of February this year. What is more important looking forward in the next phase of our post trade system development, we'll see the introduction of a few key features to improve the investment and trading services to investors and positioning Singapore as a risk management hub. In particular, we will introduce broker-linked balances, which will allow brokers to see the holdings of their clients and be able to customize services, for example, introducing other investment ideas, being able to vary collateral requirements, being able to market SBL, et cetera. The Derivatives payment ability will obviously reduce counterparty risk exposure and also shortening the settlement cycle from T+3 to T+2, thereby allowing more efficient use of investors capital.
Next, in terms of the other business segment. For Derivatives, the business continues to grow. Volume was up 34%; and open interest, up 17%. We talked quite a bit in terms of foreign exchange over the last few quarters. It's an asset class that we're building. Seeing good growth over the last year, year-over-year growth is almost 80%.
And in terms of products, we launched a few over the quarter, a whole series of MSCI Net Total Return, the EM Index Futures. We also introduced a MSCI Japan Index Futures; and then thirdly, the Indian Single Stock Futures. We also added 4 trading members and 1 clearing member for the quarter.
Now, to give you a sense of equity derivatives within the overall Derivatives business. Higher trading volume across all the key equity index contracts, you can see from the bar chart: China, India, Japan and even our own SiMSCI, on a year-over-year basis volume has increased. And also for the quarter, we've introduced a new functionality, a so-called Trade at Index Close. We will extend this functionality to more products in the future. And this functionality allows users to be able to trade at the close to the index on a differential basis.
In commodities, lower volume, down 24% as a result of lower volatility. Despite this, our market share has further improved from 95% to 98%. And also, screen trading, which is a focus for us to grow the market, now makes up 13% of the total volume versus less than 10% a year ago. And we're also seeing the increased participation overnight in the T+1 session; and gaining traction in coking coal, cementing our position, really, as a provider for the participants looking at the overall steel value chain.
Further out, we will be enhancing the platform with more functionality that will create further stickiness on our screen volumes and also developing a conducive ecosystem for the participation by more related players and stakeholders in the commodity space.
In FX, the year-on-year growth, clearly, impressive. But what is also noticeable is, just looking across the calendar year 2017, almost 2/3 of the trading days saw our notional value traded being over $1 billion. And just in the first quarter of this calendar year, from 2/3, it's now increased up to 80%. So 80% of the trading days in the first quarter 2018 saw notional values of over $1 billion.
Last but not least, in our Market Data and Connectivity business, our revenue comparable, SGD 24 million, and also a trend towards utilization of nondisplay data by participants and also users in the post trade system. And we've introduced a new fee structure to capture enterprise seeking, such utilization of nondisplay data, and we expect increasing subscription from this customer base.
Last but not least, in terms of our outlook ahead, with improved global growth, more central banks are likely to adopt tightening measures. This could lead to investors rebalancing their portfolio. We expect, as a result, market activity to improve. We will also increase our coverage and our marketing efforts to customers both locally and globally. And last but not least, strengthening our network globally through strategic partnership and alliances. The guidance for OpEx and CapEx remain unchanged, $410 million to $420 million for OpEx; and CapEx at $60 million to $65 million.
With that, we conclude the presentation, and we'll be glad to take questions. I invite my fellow management team to come onboard.
Just wait for the mic, yes.
Congratulations on the good set of numbers. I have 2 questions. First, with post the launch of the new India product derivative, based on the initial feedback from the clients, how are they looking at the product? Are we expecting a seamless migration and most of the volumes to flow into the new product, especially because the open interest has come off for the Nifty 50 in the past couple of months?
And the second question is on the dividend outlook. Would there be a scope for any higher dividend, especially with the backdrop of higher payouts by the Sing banks, so the investors would be very happy to receive very high dividends?
On your first question, the SGX India products, in coming with the product design, we've worked with market participants, the marketplace to come up with the market design. And the product is really based on the reference value methodology. So with the market feedback, we expect a similar transition to the SGX India product. And your point on OI, I think in the last couple of weeks, clearly a more world [ [ car ] market, I think there is probably a little bit of deleveraging, so I think I can't quite pinpoint to any particular product or any particular market, but I think there's a little bit of a risk-on, risk-off scenario that's been more prevalent in the last few weeks. As to the dividend outlook, we currently pay a very high dividend rate. Our payout ratio, anywhere between 86% to 90%. We do periodically review the dividend policy at the board level, and we'll update as and when appropriate.
Any other questions?
Okay, I have 2 questions. This is from HSBC Hong Kong. First question is, can you give an update on the trading linked initiative with Bursa Malaysia? And the second question is also on the new Indian product. Are you expecting any market makers or mechanism to be put in place to ensure that prices correctly reflect their underlying?
On the second question, first, on Indian product, it's yet to be launched. This will be launched in June. And it's too early to talk about market makers. But as I explained earlier, it's really based on the reference value methodology, daily [lead] prices established by the market. And with regard to the link with Bursa Malaysia, both exchanges are working to operationalize a working model. This is to enhance the customer journey, enhance efficiency; and along the way, we'll provide progress update to the market. Any other question? All right. No other question. It's a Friday evening. Anshuman?
Anshuman from Reuters. Can you just explain to us what exactly is this new India Index Derivative? I mean, the press release doesn't seem to provide a lot of information from what the previous one was. So if you could just explain how are you going to cope with it? I mean, in fact, is it a big move for you all when the NSE, BSE and other exchanges stop the contract, or would be looking through it in August? Some of the analysts have cut the earnings target, the readings target. Are you concerned what potential loss of business do you see? Or is it business as usual?
Well, I think it's important to note that in coming out with the SGX India product, it was based upon the market feedback and consultation in terms of a seamless transition in terms of excess investment flows into the Indian capital markets and, obviously, also risk management. And as I explained briefly, the SGX India product is based on the reference value methodology on -- and reference probably available prices of futures contract. And in our contract specs as we lay out, this will be finally settled on publicly available prices of futures contract on exchanges. And the prices, as with any of our Derivatives contracts, will be determined by the market demand and supply, and we expect a seamless transition into the new product.
In terms of loss of business, I mean, a loss of business, anything at all that you expect in the next few years? I mean, there have been reports talking about how this is a step which would hurt volumes. Can you just explain about that?
Sorry, can you repeat the last phrase?
Yes. In terms of -- is this a loss of business? And will it hit any earnings estimates for SGX for the next few years, next 2 years or whatever?
We do expect any immediate impact to the financial results of SGX. The product is yet to be launched. As I explained, this is based on the market feedback consultation on what would work. And given our diversified business model, multi-asset offering, our ability to diversify the new revenue streams over the last 3 years I think will put us in a good step, and we just look at the results that we just delivered in the third quarter.
My name is Saurabh Chaturvedi from Wall Street Journal. Very quick question on the India contract. So I know the product will be launched in June, but will it be in tie-up with NSE in the GIFT city? Or will NSE as it is reported at some media in India that NSE...
Sorry, will it be -- can you repeat it?
Will it be in a tie-up in the Gujarat, in GIFT city, getting some tax concessions there? Is that -- and the second question is, will SGX be using the previous day closing figures to somewhat ascertain the rate for their future products to circumvent or to come across and created some product as it was reported in certain section of Indian media?
We are still in discussion with relevant exchanges to work out a possibility of having a product out of GIFT, too early to update. Still having various discussions, but to assist the market in terms of continuity and risk management, we've introduced the SGX India product. And as I was explaining to you in terms of the methodology, it's based on reference value and based on publicly available prices of futures contract.
The reason I ask that is because the reports, again, I'm not swearing by those reports, but there would be some IP violations or copyright issues. Or since, as you mentioned, it is publicly available data, so there isn't any legal issue there? What do you think?
Yes, it's based on publicly available prices and does not reference any particular trademark or methodology.
Sorry, I have 3 questions from Goldman Sachs Hong Kong. The first one is, what's management expectations on the new India product takeup versus the current Nifty?
The second question is, how is your single stock futures doing against your own expectations? Will -- how has it -- will it contribute to the P&L soon?
And number three is, when will the new listings concerning the dual class shares come into force? How does the pipeline look for this DCS structure?
In terms of takeup rate, I think that was the first question, launching in June, so I want to give a forward-looking guidance. But again, I will emphasize, this is with market feedback and consultation in terms of the transition into a new product for continuity and risk management. Single stock futures, P&L, again, I won't provide any forward guidance. But as with any new contract, there is an expectation or certain period for this to ramp up. But so far, it's within our plan in terms of expectation. And in terms of DCS, the consultation ends on 27th of April. We'll obviously take the feedback and then come up with a framework in terms of the listing rules. And with the current feedback, obviously, we are also meeting companies to talk about their needs in terms of fundraising and capital requirement. And if and when this comes into possibility of listing, we'll update the market accordingly.
Okay. A follow-up question, how is -- what technology upgrades is SGX going to be carrying out in the next quarter?
We don't look at upgrades in terms of technology on a quarterly basis. But just to share in terms of system refreshment in the years ahead, there's, obviously, our securities trading engine. There is also, obviously, the second phase of the post trade, which is custody settlement and depositary. And these are the major system refresh that we'll be embarking on. But I think more importantly, development specs in terms of what we're going to do for what we call our Titan Pro, which is really the OTC market, in terms of cementing a stickiness to our commodities or iron ore products.
One question from Philip on the new India product. What is the source of the so-called reference price? How different from the current data source will it be from the Indian exchanges?
The reference price is publicly available, and is the prices of futures contracts of relevant exchanges as laid out in our contract specs available to clearing members, and thereby, participants. What's the second one? All right. There was a question here? Yes?
My name is Tomomi from Nikkei. Just a little bit further on DCS. I think you have mentioned in the past that after the consultation ends -- sorry, after the rule is out at the end of the second quarter calendar year, soon after, you will see the listing. So can I -- you are talking to some of the companies, and what stage is the negotiation? What kind of companies are lining up? What's your feel? And there is a consultation going on in Hong Kong Stock Exchange. Where do you see the competition coming up in terms of attracting the tech companies? And how do you differentiate yourself in the competition with the Hong Kong?
Our approach to DCS is to assist companies who needs different modes of capital raising. And as an exchange operator, bringing investors and companies together is purely a core function, amongst others; and thus, our ability to serve the needs of capital seeker matching them with capital provider. We expect companies to utilize the DCS structure that suits their capital raising needs. And I wouldn't want to go into specific on what kind of companies, you will see them when they come.
So you are talking ...
Say again?
There were companies that you're talking -- I mean, the companies are interested in...
Yes, we're talking to companies. And also, we're talking to companies more holistically in terms of the appeal of the SGX market in terms of capital raising, how we can work with them and in different forms of capital structure. This year is just one of those that can be available to them.
Can we expect some companies being this -- using this year, this calendar year?
We hope the market conditions would be conducive for all capital raising, and this year's structure could be one of those.
Any other question? Okay, if not, thank you very much. We really appreciate you attending on the Friday evening, and hope you have a very enjoyable weekend. Thank you very much.