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Nikkei Markets

SGX sees better trading conditions helping equities business

Quarterly profit slips as weakness in stock market offsets gains in derivatives

SINGAPORE (Nikkei Markets) -- Singapore Exchange said it expects its securities business to improve even as it posted a drop in quarterly profits, hurt by fewer new listings and shrinking stock market trading values.

SGX blamed the fall in securities revenue on weakness in global stock markets, which it said made investors more cautious. Its revenue from companies seeking to list on it fell 15% from a year ago in the third quarter ended March, while securities trading and clearing revenue dropped 30%.

By contrast, derivatives trading hit a record high, with daily average volumes crossing the 1 million contracts mark for the first time.

Looking ahead, CEO Loh Boon Chye said the derivatives business would remain strong while foreign exchange was starting to emerge as a promising growth pillar.

As for securities, he said trading activity would pick up "as we enter a low interest-rate environment." He added that this would especially benefit the real-estate investment trusts, which are amongst the most popular investments on SGX due to their strong performance and relatively high dividends.

In all, the exchange operator posted net profit of 99.7 million Singapore dollars ($73.1 million) for the quarter, down slightly from S$100.5 million in the same period a year ago. The results were in line with the S$99.6 million consensus estimate of analysts polled by Refinitiv.

SGX's income from equities and fixed income fell 23% to S$83.6 million during the quarter from a year ago, offsetting the 32% increase in derivatives revenue to S$119 million.

"We saw increased activity and higher open interest amid strong institutional demand," Loh said.

SGX has relied on derivatives to grow revenue and profits in recent years as its traditional equities business suffered from low trading volumes and delistings of stocks. Over the past 10 years, SGX's derivatives revenue has increased by about 8% per annum on average, DBS said.

By comparison, the equities business has been stuck in the doldrums. SGX last saw a main board listing in July, while several high-profile companies, including mobile operator M1 and electronics retailer Courts, have exited the stock market or are in the process of delisting their shares.

In the three months ended March, SGX's average daily value of securities traded declined 30% to S$1.02 billion from a year ago.

The dry spell for large listings ended earlier this week when real estate investment group ARA filed a draft prospectus to list a property trust containing some $719.5 million worth of U.S. hotel assets under the Hyatt brand.

Loh said he expects to see three to four initial public offerings on the main board in the near future if market conditions hold.

--Kevin Lim

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