The Business Times

SHARES of the Singapore Exchange (SGX) rose on Monday morning following its surprise move to raise its final quarterly dividend to 8.0 Singapore cents per share, up from 7.5 cents a year ago.

Shortly after the opening bell, the stock was trading at S$8.28 as at 9.03am, up 1.4 per cent or S$0.11. It continued to build on its gains, surging to S$8.49 as at 11.38am, up S$0.32 or 3.9 per cent, after more than 5.1 million shares changed hands.

The bourse operator on Thursday announced a higher dividend for its fourth quarter ended June 30, 2020, on a strong set of results. SGX’s total FY2020 dividend will be 30.5 cents per share.

Analysts had been looking out for the full-year dividend as a signal to how SGX saw market challenges. Most had expected it to keep to its base commitment of 30 cents for the full year, or 7.5 cents a quarter.

Meanwhile, chief executive officer Loh Boon Chye on Thursday also reiterated the aim to pay a growing and sustainable dividend, with the annualised dividend for FY2021 seen at 32 Singapore cents per share.

With the increased dividend lending support to SGX’s share price, some analysts this week increased their target prices (TPs) and upgraded the counter.

CGS-CIMB, which raised its TP to S$9.00 from S$8.00 and upgraded SGX to “add” from “hold”, on Monday said it believes the earnings risk from SGX’s MSCI licence expiry has been largely priced in.

The research team sees potential upside from successful client migration to the bourse’s new FTSE Taiwan Index Futures and the expanded derivatives suite.

SGX’s recent acquisitions of Scientific Beta and BidFX, will also allow for new customer acquisitions, expanded product offerings such as thematic indices and as well as environmental, social and governance solutions, and the entry into the bigger over-the-counter (OTC) FX market, said CGS-CIMB analyst Ngoh Yi Sin.

Likewise, RHB Securities analyst Leng Seng Choon said that the counter’s 8 per cent year-to-date fall in share price has already reflected the forecast weaker FY21 earnings from reduction of the MSCI licence agreements.

He added that SGX remains attractive given that the bourse’s securities average daily value could rise on the back of increased news flow about the Covid-19 pandemic.

RHB Securities kept its TP at S$9.20 for the stock and maintained its “buy” call.

Meanwhile, DBS Group Research expects the institutional-driven derivatives business to continue to be a key growth driver.

“We expect this trend to persist as SGX continues to introduce more derivatives products, such as growing the market for currency futures. In FY19-20, SGX also benefitted from higher open interest and margin balances, in part due to higher interest rates which drove derivatives’ collateral management income,” said DBS analyst Lim Rui Wen on Monday.

That said, Ms Lim pointed to competition in the derivatives market as a key risk. The Hong Kong stock exchange’s plan to launch futures contracts may compete with SGX’s FTSE China A50 Index Futures, which accounts for about 40 per cent of the Singapore bourse’s total derivatives volume, she wrote.

However, SGX has been looking to wean off some reliance on the derivatives business, by diversifying into areas. For instance, it is growing its market data and index businesses, and is also developing into a regional fixed income platform with the launch of its bond trading platform, Ms Lim said.

DBS upgraded SGX to “hold” from “fully valued”, and lifted its TP to S$8.40 from S$7.40 previously.

The bourse operator’s full-year net profit grew 20.7 per cent to S$471.8 million for FY2020, exceeding analysts’ average forecast of about S$455.3 million. Revenue climbed past S$1 billion to reach S$1.05 billion, up 16 per cent from a year earlier, making it the highest since its listing.

For the fourth quarter, SGX’s net profit increased by 16.6 per cent, while revenue was up 12.2 per cent.

Chief executive Mr Loh also said that SGX will have a new and expanded suite of derivatives products well ahead of the expiry of the non-Singapore MSCI product licences in February 2021.