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What You Should Know About Singapore Exchange (SGX: S68) Shares in 60 Seconds

profileSudhan P

In this series, we feature one Singapore-listed company each time as a quick guide to everything you should know about it in 60 seconds. 

Right here, we have Singapore Exchange Limited (SGX: S68) (SGX), Singapore’s only stock market operator. 

What’s SGX’s Business About? 

SGX runs the infrastructure that allows people to buy and sell shares, real estate investment trusts (REITs), exchange-traded funds (ETFs), bonds, and derivatives, among other things.

The company prides itself in being the “most liquid international market for pan-Asian listed derivatives” and the most international stock exchange in Asia. 

SGX has three main business divisions:

  • Fixed Income, Currencies and Commodities (FICC)
  • Equities
  • Data, Connectivity and Indices (DCI)

The FICC segment provides fixed income issuer services, trading and clearing services and collateral management. 

Revenue from the Equities segment comes from providing securities trading and clearing, securities settlement and depository management, and derivatives trading. 

Last but not the least, the DCI segment provides market data, connectivity and indices services. 

Pictorially, the following is how SGX’s FY2020 (financial year ended 30 June 2020) revenue can be broken down:

Source: Singapore Exchange FY2020 annual report

SGX’s Financial Highlights 

Being the only stock market operator in Singapore, anyone who wishes to trade shares has to go through SGX; there’re no two ways about it.

Also, with a broad range of derivatives being offered, SGX can tap into the rapidly growing derivatives market.

Therefore, it is not surprising to see SGX performing well financially over the years:

 FY2015FY2016FY2017FY2018FY2019FY2020
Revenue (S$ million)7798188018459101,053
Net profit (S$ million)349349340363391472
Net profit margin 45%43%42%43%43%45%
Return on equity37%36%34%34%36%40%
Earnings per share (cents)32.632.631.733.936.544.1
Operating cash flow per share (cents)40.139.635.339.939.058.3

Due to its wide economic moat, SGX has an enviable net profit margin and return on equity (ROE). The net profit margin shows how much a business gets to keep for every dollar of revenue generated while the ROE figure reveals how efficient SGX’s management is in turning every dollar of shareholders’ money into profit. 

For FY2020, SGX clocked in a net profit margin of 45% and an ROE of 40%. Both figures are higher than what most companies in Singapore’s stock market can achieve. 

SGX’s balance sheet is also rock-solid. As of 30 June 2020, its cash balance stood at S$907 million with just S$300 million in bank borrowings. 

SGX’s Dividend History

Since the start of FY2019, SGX revised its dividend policy, as mentioned in an earnings release:

“From FY2019, SGX will revise its dividend policy from one based on a percentage of net profit, to one based on an absolute amount. The new policy aims to pay a sustainable and growing dividend over time, consistent with the company’s long-term growth prospects. This will provide flexibility for SGX to balance its dividend payments with the need to retain earnings to support growth.”

For FY2020, SGX paid out 30.5 Singapore cents per share. From FY2021 onwards, the stock exchange will raise its dividend to 32 cents per share.

Year Dividend per share (Singapore cents)
FY201528
FY201628
FY201728
FY201830
FY201930
FY202030.5

Major Risk for SGX to Take Note Of

One main downside with SGX would be its inability to attract home-grown companies to list in Singapore.

Examples of prominent firms listing elsewhere include Razer Inc (HKG: 1337) and Sea Ltd (NYSE: SE), which recently won the digital banking licence here.

However, SGX’s other businesses, such as derivatives, are holding up the fort.

SGX’s Share Price and Valuation 

Over the past five years, SGX’s share price has climbed 29% in all.

Source: Google Finance

At SGX’s current share price of S$9.58, it has a price-to-earnings (P/E) ratio of around 22 and a trailing dividend yield of 3.2%.

Want to Discuss Further?

Why not check out our community at Seedly and participate in the discussion surrounding stocks like Singapore Exchange Limited (SGX: S68) and many more!

Disclaimer: The information that follows serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the company mentioned.

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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