SGX earnings preview: what’s the outlook as Q1 results loom?

With the Singapore Exchange (SGX) set to release its Q1 results this Thursday – October 24 – we look at the current analyst consensus as well as some of the company’s expectations for FY20.

When will the Singapore Exchange report its results?

The Singapore Exchange or SGX is set to report its first-quarter FY20 results on October 24, 2019 – after the market closes.

SGX share price: what’s the outlook?

The Asian growth story rages on – trade wars aside, that is.

Centrally, SGX’s Chief Executive Officer, Loh Boon Chye, believes that the favourable macro-economic conditions in the Asian region rank as a key positive, with ‘the internationalisation of Asian markets as well as the increasing convergence of OTC and listed markets, continu[ing] to support our business growth.’

Speaking broadly on the FY20 outlook, SGX’s CEO also noted that the recent and fundamental reorganisation of its core business and client units will allow the company to:

‘Sharpen our focus on building scale, enabling us to not only capture the opportunities across multiple asset classes but also serve our clients’ needs more holistically.’

Aspirations aside, investors will likely be keen to see how (if at all) this operational re-jigging has impacted the company’s top and bottom-line in the first quarter. For reference and as revealed during the FY19 results: SGX saw modest growth across the board, with revenue hitting S$910m (+8%), net profits reaching S$391m (+8%) and EPS touching 36.5 cents (also +8%).

On guidance, management has said that for the full 2020 fiscal year, operating expenses are expected to hit between S$465m and S$475m.

And on a broader strategy front, SGX has endeavoured to 'serve our global Equity Capital Market and Debt Capital Market customers with a broad overseas footprint.' Indeed, in 2019, for example, the exchange saw 90% of its bond listings and 45% of its equities listings come from oversees.

Such endeavours build on a promise outlined in SGX's FY18 annual report to grow its international presence.

SGX share price: the analyst view

On the sell-side, analysts have turned somewhat more bearish on SGX’s share price prospects in recent months. According to the Wall Street Journal, of the 16 analysts currently covering the stock, two rate it a buy, eight a hold, five a sell; as well as one underweight rating. Overall, SGX's consensus rating is underweight.

Three months ago this consensus rating was a hold.

Following SGX’s fourth-quarter results, CGS-CIMB’s analyst NGOH Yi Sin, commented that in the current climate, he sees limited upside, downgraded the stock to hold, and commented that it continues to have ‘quality yield’. He further noted that:

'We think a c.S$20m step-up in opex guidance and persistent securities weakness could mitigate derivatives volume growth in FY20F.'

Year to date, the Singapore Exchange (SGX) share price has risen a little over 15%. At the time of writing shares traded hands at the S$8.29 mark.

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