Singapore Exchange (SGX) is a leading multi-asset exchange in Asia. It has gained recognition for its offerings in seaborne iron ore and dry bulk freight derivatives, along with its distinction as the largest and most liquid provider of Asian foreign exchange (FX) futures worldwide. Through its diverse product offerings, the exchange offers participants access to nearly the entire Asian market. Approximately 40% of its equity market capitalization and 80% of its bond listings are contributed by foreign companies and issuers, underlining its global significance.
Here are eight things I learned from the 2023 Singapore Exchange AGM.
1. Revenue improved 8.7% year-on-year to S$1.2 billion in FY2023 due to stronger volume and higher revenue from derivatives products. The average fee per derivatives contract grew 6.6% from S$1.51 in FY2022 to S$1.61 in FY2023 because of a higher proportion of higher fee-paying customers and stronger volume of iron ore contracts. Revenue is expected to grow at a high single digit in the medium term.
Net profit excluding extraordinary items grew 6.3% year-on-year to S$462.4 million in FY2023. Dividend per share improved from 32.0 cents in FY2022 to 32.5 cents in FY2023 and is forecasted to grow in the mid-single digit range in the medium term. The management also shared that SGX’s various business units earned more treasury income in FY2023 from participants’ assets held as collateral for securities and derivatives products on the back of rising interest rates.
2. Revenue contribution was fairly distributed across different segments in FY2023. SGX’s revenue stream is well-diversified to offset the slowdown in listing activities during the year. Revenue contribution from fixed income, currencies, and commodities (FICC) has grown from 16% in FY2020 to 28% in FY2023 because of organic growth and the acquisitions of BidFX and MaxxTrader.
3. A shareholder pointed out that the daily equity traded value on the Hong Kong Stock Exchange far exceeded than that of Singapore Exchange. To add on, the entire Hong Kong and Singapore stock markets were valued at US$5 trillion and US$400 billion respectively; Hong Kong continues to outshine Singapore as an equity hub.
Instead, SGX continues to focus on its derivatives businesses to deliver shareholder value. The management mentioned that the whole derivatives businesses (including equities, currencies, and commodities) made up of about half of the stock exchange’s revenue. The corresponding revenue breakdown was not disclosed.
4. The management added that the cash equity and the fixed income sectors are cyclical. The tightening of monetary policy took a toll on primary listings and bond markets globally in the past year as interest rates rose. Furthermore, companies raise capital from the private markets nowadays and do not always have to go through the traditional IPO route.
SGX aims to improve its revenue by encouraging more secondary listings and promoting its market makers and active traders programmes. Its first de-spac is set to launch soon. SGX currently provides bond futures and options contracts, and will also explore having a bond over-the-counter (OTC) trading business in the future.
5. From just six, the number of FX futures products offered by the stock exchange grew sixfold within a span of 10 years in FY2023. SGX boasts the largest and most liquid Asian currency derivatives products. It is the leader in Chinese renminbi and Indian rupee futures contracts and a notable contender in Korean won, New Taiwan dollar, and Thai baht futures contracts. SGX’s OTC FX daily volume averaged at US$75.8 billion in FY2023 and is on track to hit US$100 billion by FY2025.
6. Revenue from commodities derivatives has been increasing over the last five years. In FY2023, commodity derivatives volume increased 35.4% year-on-year to record 41.0 million contracts. The iron ore derivatives volume recorded 40% year-on-year growth to over 3.5 billion tons. This amount is more than enough to produce steel to construct 300,000 Marina Bay Sands SkyParks. More clients have been trading iron ore contracts since China reopened its borders and the paper trade volume of iron ores exceeds its physical trade volume.
7. Impairment losses amounting to S$8.3 million was recognised on Scientific Beta in FY2023 owing to its underperformance. Additionally, S$23.3 million worth of forward liability was written back during the year in view of its weaker-than-expected business outlook. This means the acquisition cost of the 7% stake SGX does not already own will be reduced accordingly. SGX did not have to spend an additional S$15 million to acquire MaxxTrader as the acquiree did not meet the outperformance revenue threshold in 2022 as part of the earnout mechanism.
8. SGX continues to partner with several regional stock exchanges to provide access to each other and facilitate cross-border trading. Collaborative products include ETF Links with Shenzhen and Shanghai Stock Exchanges, as well as the Singapore Depository Receipts under the Thailand-Singapore DR Linkage. SGX is a notable provider of liquid equity index derivatives including SGX FTSE China A50 Index futures and Nifty 50 Index futures contracts. There was an open interest of US$9 billion over the recently launched NSE IX-SGX GIFT Connect options and futures after the SGX-NSE feud ended. The exchange has doubled the assets under management under its ETF products in the past three years as one-thirds of the equity comes from passive investment.
The fifth perspective
SGX continues to demonstrate consistent dividend growth within the backdrop of a stable regulatory framework and a business-friendly environment in Singapore. The primary driver of its growth continues to be its derivatives business. Simultaneously, the stock exchange is actively working to attract a broader international audience by introducing an array of new products tailored to diverse requirements, with the aim of solidifying its position as the preferred choice for market participants.
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