Your 60-Second Guide To Singapore Exchange (SGX) Shares

Your 60-Second Guide To Singapore Exchange (SGX) Shares

Sudhan P

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

In this instalment, we have Singapore Exchange Limited (SGX: S68) (SGX), Singapore’s only stock market operator. Previously, we featured Singapore Press Holdings Limited (SGX: T39), the publisher of The Straits Times and the likes. 

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 — Equities and Fixed Income; Derivatives; and Market Data and Connectivity.

Equities and Fixed Income segment provides issuer services, securities trading and clearing, and post-trade services. 

Revenue from Derivatives segment comes from providing derivatives trading and clearing services, membership and collateral management. 

Last but not the least, the Market Data and Connectivity segment provides market data and connectivity services. 

Pictorially, the following is how SGX’s FY2019 (fiscal year ended 30 June 2019) revenue can be broken down:

SGX FY2019 revenue breakdown
Source: Singapore Exchange Annual Report 2019

SGX announced a new organisation structure that took effect on 1 July 2019. With that, the business segments will be re-shuffled into 1) Fixed Income, Currencies and Commodities; 2) Equities (Cash and Derivatives); and 3) Data, Connectivity and Indices for FY2020.

SGX new business units
Source: Singapore Exchange Corporate Day Presentation Sept 2019

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:

Revenue (S$ million)779818801845910
Net profit (S$ million)349349340363391
Net profit margin 45%43%42%43%43%
Return on equity37%36%34%34%36%
Earnings per share (cents)32.632.631.733.936.5
Operating cash flow per share (cents)40.139.635.339.939.0

In FY2019, SGX’s revenue hit a record since listing in 2000 while net profit reached an 11-year high.

In my opinion, it would be near-impossible for anyone to try and penetrate SGX’s stronghold. This characteristic gives the company a wide economic moat. 

Due to its position, 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 FY2019, SGX clocked in a net profit margin of 43% and an ROE of 36%. 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 September 2019, its cash balance stood at S$786.5 million with no bank borrowings.

SGX’s Dividend History

Since the start of FY2019, SGX revised its dividend policy, as mentioned in a recent 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. 

SGX will pay a higher dividend of 7.5 cents per share per quarter, starting from the first quarter of FY2019.”

For FY2019, SGX paid out 30 Singapore cents per share. Since FY2009, dividends from SGX has grown by 15% in all.

Year Dividend per share (Singapore cents)

Major Risk For SGX To Take Note Of

A major risk with SGX is that of slowing revenue in its equity business.

In FY2019, revenue from Equities and Fixed Income decreased by 15% to $347.5 million. As of end-2018, SGX’s average daily turnover has been halved since 2007. Big-name delistings and Singapore-grown companies listing elsewhere have also caused investors to worry.

SGX’s Share Price And Valuation 

From 1 July 2018 to 30 August 2019, SGX’s share price has climbed 14%, outperforming Singapore’s stock market benchmark, the Straits Times Index, which fell 5% during the same period.

SGX’s five-year share price trend is as follows:

SGX Five-Year Share Price Trend From Google Finance
Source: Google Finance

The strong financial performance in FY2019 and in the first quarter of FY2020 have caused SGX’s shares to trade at a multi-year high.

At SGX’s current share price of S$8.99, it has a price-to-earnings (PE) ratio of around 23 and a dividend yield of 3.3%.

Want to discuss further?

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

The information provided by Seedly 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 getting into any investment. The writer may have a vested interest in the company mentioned.

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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