We recently featured Singapore’s sole exchange operator, Singapore Exchange Limited (SGX:S68) (SGX), as one of four dividend stocks to consider for your portfolio.
On February 9, 2023, SGX reported its results for the first half of the fiscal year ended June 30, 2023 (FY2023). If you are a follower of SGX, you may be interested in the company’s latest results.
In this article, let’s look at three key aspects of SGX’s financial results announcement.
#1 1H FY2023 Revenue up 10%
SGX has three business segments — Fixed Income Securities, Currencies and Commodities (FICC); Shares; And Data, Connectivity and Indexes (DCI). Overall, the company’s revenue increased 10% year-on-year to S$571 million.
Both FICC and Equities saw revenue increase, but DCI saw its revenue decline slightly.
FICC revenue increased 35% year-on-year to S$154.3 million, representing 27% of total revenue; Share income increased 3% to S$344.7 million and contributed 60% of total income; while DCI revenue decreased 1% to S$72.5 million, accounting for 13% of total revenue.
Source: Singapore Exchange 1H FY2023 earnings presentation
Now let’s focus on the equity (cash) portion of SGX’s business, which retail investors may be familiar with.
In this sub-segment of SGX’s equities business, revenue fell 10% (or approximately S$20m) to S$171.2m as a drop in daily securities turnover (SDAV) and average clearing fee hit the top line. A lower number and value of new stock listings for the recent period also impacted the business.
In the most recent period there were four new listings raising S$9.7 million compared to six new listings last year raising S$1.3 billion. Also, S$2.4 billion was raised from secondary equity funds in H1 FY2023 compared to S$4.4 billion a year earlier.
Going forward, SGX operating expenses increased by 10.1% to S$237.4 million primarily due to higher personnel expenses, technology costs and license fees. As a result, operating profit increased by 9.5% to S$284.1 million. The operating profit margin was stable at 50%.
As non-operating income for the first half of FY2023 increased significantly to S$61.2m (from S$9.6m exactly one year ago), mainly due to an increase in non-recurring other income, including interest income , SGX net income increased by 30% to S$284.6 million.
Summarizing his company’s latest results in the earnings release, SGX Chief Executive Loh Boon Chye said:
“We are pleased to report a set of financial results that underscore the importance of SGX Group to global investors. Our derivatives business continued to outperform with turnover up 28% year-on-year, driven by broad-based gains across asset classes and record volumes in key contracts. In the area of raw materials in particular, we have accelerated the financialization of iron ore and expanded our range of services.”
#2 Operating cash flow decline despite higher profitability
As of December 31, 2022, SGX had S$920.4 million in cash on the balance sheet and S$677.4 million in debt. With a strong net cash position, the stock market should be able to weather any tough economic conditions.
Given the aforementioned one-time gains, most of which are non-cash, it would be worth focusing on SGX’s operating cash flow. In the last six months, SGX operating cash flow decreased by 28.8% to S$182.0 million.
However, the group maintained its dividend for H1 FY2023 at 16.0 Singapore cents per share.
Source: Singapore Exchange 1H FY2023 earnings presentation
#3 What does the future hold for SGX?
Looking ahead, SGX mentioned:
“In the coming months, we will begin full-scale operations of the National Stock Exchange of India (NSE) IFSCSGX Connect, which will bring us closer to merging the growing national and international liquidity pools for Nifty products. The reopening of China’s borders could result in increased portfolio risk management and access activity to our derivatives platform. Uncertainty may remain in the short-term for cash stocks as inflation and interest rate risks can weigh on growth and corporate earnings.”
It will be interesting to see how much of China’s reopening opportunity SGX can capture in the coming quarters.
SGX shares closed at S$9.19 a share on Friday, translating into a price-to-earnings multiple of 19.6x and a dividend yield of 3.5%.
4 SGX dividend stocks for your portfolio: HRnetGroup; micromechanics; SGX; Singapore Paincare
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