SGX Opinion

I hope Chinese New Year is great for everybody, a good break amidst a busy schedule! One more stock which I am interested in is SGX. My recent thoughts were invoked by this article which was about the 'shrinking stock market' in Singapore. From face value, this translates into a lower trading volume which does not bide well for SGX. But I thought it would be interesting to read the financial statements.

Here is the quick look at the financial performance for this quarter.

Source: SGX 2Q 2019 Financial Presentation

Net profit went up in spite of an increasing expense.

A breakdown in the revenue shows that the bulk of increased profit came from derivatives trading. Market data and connectivity also helped contribute an increase in revenue. Notably, SDAV (security daily average value) went down which contributed a slight drop in revenue. This is in tandem with the article which I posted above. Other factors contributing to the decline included a drop in fixed income revenue too.

Source: SGX 2Q 2019 Financial Presentation

Dividend for this quarter stands at 7.5 cents which is a comfortable amount given that earnings per share is 9 cents.

Source: SGX 2Q 2019 Financial Presentation

I think I have mentioned before in my previous posts but potential risks include a possible trade war and interest rate hikes, which will affect the financial markets. From the recent financial statements, we can also infer that there is a shift of preference from the traditional stock market trading to derivative trading, which is pretty notable. In volatile times, more market participants might turn to derivatives either to hedge or initiate a position.

Besides this, what I like is SGX's dividend policy, which the management will aim to pay 7.5 cents per quarter. Of course, we cannot 100% take their words for it, but a word of assurance does help boost investor confidence. We do note that dividends per share are currently below earnings per share too.

With reference to the article which I posted, there is some worry that companies will choose the HK market over Singapore due to the higher liquidity there, which will affect SGX's business as a whole. Since the derivatives section for SGX seems to be the highlight for now, it is pretty good that an increase in volatility will mean an increase in derivatives trading. Currently SGX is trading at 7.7 with a PE of around 22. Dividend yield is 3.89% at current price, assuming 30 cent dividend policy stays constant. The 52-week low is 6.72 which is pretty far from its current price. At that price, dividend yield is 4.46% instead.

If we go by 'common sense', SGX can be considered a defensive stock with no natural competitors here. But we should not forget that SGX has competitors nearby in Hong Kong where IPOs can flock to.

I will be looking to accumulate at 7 which seems to be the last support here.

Happy Valentines too! :)