SGX enjoys FX, iron ore derivatives boost in 1HFY2024; insists spac rules ‘work’
Market conditions may not have been conducive for new equity listings over the past two years, but the Singapore Exchange (SGX Group) saw bright spots in overthe-counter foreign exchange (OTC FX) trading and iron ore derivatives, with traded volumes rising nearly 50% y-o-y in 1HFY2024 ended Dec 31, 2023.
On Feb 1, SGX reported adjusted net profit of $251.4 million, 6.2% higher y-o-y, for 1HFY2024. Adjusted ebitda rose to $344.6 million, up 3.2% y-o-y, while adjusted earnings per share increased to 23.5 cents from 22.2 cents this time last year.
Revenue increased 3.6% y-o-y to $592.2 million, mainly driven by higher revenues from the currencies, commodities, platform and others segments but was partially offset by lower equities revenue.
SGX says the adjusted figures exclude certain non-cash and non-recurring items that have “less bearing” on its operating performance. “Hence, they better reflect the group’s underlying performance.”
The bulk of the adjustments, which brought reported net profit down by some $30 million, came from a $35 million fair value gain from the exchange’s investment in a closed-end private equity fund managed by 7RIDGE. SGX announced the US$200 million ($268 million) investment into the London-based “growth equity firm” in November 2021, which acquired US-based trading software provider Trading Technologies the following month.
Before the adjustment, net profit of $281.6 million was 1.0% lower y-o-y. Unadjusted earnings per share would have been higher at 26.3 cents.
SGX has declared an interim quarterly dividend of 8.5 cents per share, payable on Feb 20. This brings total dividends in 1HFY2024 to 17.0 cents per share.
SGX raised its quarterly dividend to 8.5 cents at the release of its results for FY2023 ended June 2023, ending 12 consecutive quarterly payouts of 8 cents. At the latest briefing, CEO Loh Boon Chye reiterated his plan to maintain “mid-single-digit” CAGR growth in dividends over the medium term.
At the previous results briefing in August 2023, Loh said SGX is targeting “high-single-digit” revenue growth while limiting expenses, which had risen 7.7% y-o-y to $604.9 million in FY2023, to a “mid-single-digit” increase in the medium term.
But total expenses in 1HFY2024 rose just 3.0% y-o-y to $296.1 million, mainly from higher staff costs and technology costs, offset by lower royalties and professional fees. Adjusted total expenses, meanwhile, rose 3.5% y-o-y to $289.7 million, which excludes amortisation of purchased intangible assets.
While Loh reiterates SGX’s revenue growth target, CFO Ng Yao Loong says the expected expense growth for FY2024 is “likely to be similar” to the 3% y-o-y growth rate seen in 1HFY2024, lower than the previous guidance.
Total capital expenditure during the period was $18.5 million, down from $17.8 million this time last year. SGX’s projected capital expenditure for FY2024 is anticipated to be within $70-75 million, lower than the previously guided range of $75-80 million.
New classification
SGX has adopted four new operating segments from 1HFY2024: fixed income, currencies
and commodities (FICC); cash equities; equity derivatives; and platform and others.
Up until its previous set of results for FY2023, SGX had classified revenue under three segments: FICC; equities; and data, connectivity and indices.
The latter now falls under the platform and others segment, which also includes membership-related fees across the group and revenue from Scientific Beta, Index Edge, the Energy Market Company (EMC) and the Baltic Exchange.
With the change, revenue contributions across the four segments are more evenly distributed in 1HFY2024 at 25.6% for FICC, 26.9% for cash equities, 27.1% for equity derivatives and 20.3% for platform and others.
SGX has reclassified its revenue for 1HFY2023 to the four new segments for a like-for-like comparison. FICC revenue increased 28.1% y-o-y to $151.9 million and accounted for 25.6% of total revenue, up from 20.7% in 1HFY2023.
There were 489 bond listings that raised $131.7 billion during the period, up from 449 bond listings that raised $104.3 billion a year earlier.
Currencies and commodities revenue, too, increased 29.5% y-o-y to $148.0 million.
OTC FX revenue was $40.9 million, up from $36.2 million a year earlier. The average daily volume (ADV) of OTC FX traded rose 46.4% y-o-y to US$100.1 billion, primarily due to higher volumes in currency swaps from clients managing interest rate risks.
SGX says its OTC FX business remains on track to achieve an ADV of US$100 billion “by FY2025 or earlier”.
Meanwhile, commodity derivatives volumes increased 48.3% y-o-y to 28.7 million contracts, primarily due to higher volumes in iron ore derivatives, which rose 48.7% y-o-y.
Cash equities revenue, however, declined 5.6% y-o-y to $159.6 million and accounted for 26.9% of total revenue, down from 29.6%.
Daily average traded value and total traded
value for cash equities declined 11.5% and 12.2% to $1.0 billion and $121.2 billion respectively, reflecting the rather listless trading climate.
During the period, SGX recorded four new equity listings, which raised $19.0 million. While this is unchanged from the four new listings seen in 1HFY2023, last year’s debuts only raised $9.7 million.
The four most recent listings were: Winking Studios, which undertakes digital artwork for gaming companies; Sheffield Green, which helps recruit technical personnel for clients in the renewable energy industry; Niks Professionals, which runs a chain of clinics specialising in skin care; and Pasture Holdings, which supplies pharmaceutical products and medical supplies.
There had been a couple of widely anticipated and much larger listings, including the spin-off of the beer business of Thai Beverage, which has yet to materialise.
IPO environment vital for de-spac
Singapore’s three spacs debuted in January 2022, but only one — Vertex Technology Acquisition Corp (VTAC) — successfully acquired a target before last month’s deadline. Shares in the live-streaming company 17Live, which was the only de-spac, fell some 18.9% on Dec 8, 2023, its first trading day.
Compared to VTAC’s $5 issue price,17Live was trading at around $1.31 on Feb 1. The two remaining spacs, Pegasus Asia and Novo Tellus Alpha Acquisition (NTAA) chose to dissolve and will be returning the funds to the investors instead. Before this, however, the target company of Pegasus Asia had already been identified and widely reported as satellite internet provider Kacific Broadband Satellites.
In hindsight, would SGX have done anything differently? Pol de Win, head of global sales and origination, blames poor timing. “For a good de-spac, you also need a conducive IPO environment. Clearly, that hasn’t really been there in the last two years.”
He adds: “If we [went] back two years, we would have hoped that we are in a different position [than] now. But a lot of that, or pretty much all of that, is just down to timing and market conditions. I would say we make these decisions not based on one cycle; we make these decisions for the longer term.”
Spacs could come back into vogue “in the next five years, 10 years, perhaps”, says de Win and SGX would be ready. “Now we know that we can deliver them. The frameworks and the policies work; the infrastructure required for that works … We know that the structure works, but the market conditions need to be there.”
Besides laying down the framework for spacs, SGX updated its listing rules in August 2023, allowing life science companies to apply to list even if they have not met certain requirements.
According to de Win, feedback has been “overall positive”. “Now, there’s a recognition that for companies in the life sciences space that are even pre-revenue, they can come to us. We also need a conducive IPO environment, and that’s a broader topic. But we are positive that as we get into an environment where IPO activity comes back, we’ll see some of these companies come through as well.”
The exchange is known for attracting listings for companies in specific sectors, taking into account the specific nature of their business. Back in 2011 and 2013, for example, SGX set down listing rules for the socalled mineral, oil and gas companies, with a view that some of these entities had yet to ramp up production and, thus, hardly had any revenue.
For now, the bourse is not considering bending the rules for other sectors. “If you look at our current frameworks and regulations, it’s extremely comprehensive. I don’t think we need to do anything specific to attract other businesses. This has been in place for a long period of time; pre-profit companies can come, high-growth companies can come, we can do [additional] checks.”