Singapore’s Straits Times Index (SGX: ^STI) has been on a tear this year.
The bellwether index has delivered a total return of 14.3% up till 11 September and is breaking a new six-year high.
One of the beneficiaries of this surge is Singapore Exchange Limited (SGX: S68), or SGX.
The bourse operator saw its share price surge 13.5% year-to-date to hit S$11.11.
This was after the price had settled from its 52-week high of S$11.80, which was also a five-year high for the group.
Can SGX’s share price continue to rally? What are the initiatives that the group is taking to grow its business?
A strong set of earnings
First off, we look at SGX’s recent earnings release for its fiscal 2024 (FY2024) ending 30 June 2024.
The bourse operator’s revenue rose 3.1% year on year to S$1.2 billion, buoyed by the rise in revenue from commodity and currency derivatives.
Net profit, after excluding one-off and exceptional items, improved by 4.5% year on year to S$525.9 million.
The blue-chip group also churned out a positive free cash flow of S$551.2 million, up 40.5% year on year from the prior year’s S$392.4 million.
In line with the good results, SGX upped its quarterly dividend from S$0.085 to S$0.09, taking its annualised dividend per share from S$0.34 to S$0.36.
At its recent share price of S$11.11, SGX’s shares offer a forward dividend yield of 3.2%.
Firing on many cylinders
SGX latest results show that the bourse operator is firing on many cylinders.
Its Fixed Income, Currencies and Commodities (FICC) division saw revenue jump 22.3% year on year to S$322.5 million.
In particular, the FICC – Currencies and Commodities revenue climbed 23% year on year to S$314 million.
The division benefitted from a sharp surge in exchange-traded currencies and commodities volumes.
Total volume for FY2024 surged 42% year on year to 111.2 million contracts, underpinned by a 62.1% and 51.5% year-on-year increase in rubber and iron ore derivatives volumes, respectively.
Over at SGX’s foreign exchange (FX) division, average daily volume (ADV) across the FX franchise has doubled in the past three years, going from US$59 billion in FY2021 to US$111 billion in FY2024.
The number of contracts for FX futures also jumped from 150,000 to 204,000 year on year with total open interest jumping 76% year on year to US$27.6 billion.
One weak area, though, was SGX’s cash equities market.
The total traded volume of shares dipped by 2.5% year on year to 341.4 billion while total traded value slid 4.2% year on year to S$263.7 billion for FY2024.
Over at the equity derivatives segment, total volume fell by 7.7% year on year to 159.3 million contracts.
Things could be looking up for the equities division soon, though.
MAS review group set up
Back in early August, The Monetary Authority of Singapore (MAS) announced the setting up of a review group to provide recommendations on how to strengthen the development of Singapore’s stock market.
This group is led by Second Minister for Finance Chee Hong Tat who is also a board member of MAS.
Other prominent members include MAS managing director Chia Der Jiun and Temasek Holdings CEO Dilhan Pillay.
For the first half of 2024, there was just one initial public offering (IPO) on SGX.
During the first five months of this year, 10 companies were delisted through exit offers.
Mr Chee stressed the importance of doing something to improve SGX’s reputation as a good place for companies to seek a listing.
He acknowledged that revitalising the stock market here was “not an easy task”.
The government is ready to consider policy measures and incentives to improve not just the equities market here but also the enterprise financing ecosystem.
One suggestion is to make SGX a trusted venue to drive investor flows into mid-sized regional companies.
Being listed in Singapore is thus preferable to being listed in a faraway country as these companies can enjoy better investor familiarity.
The review group will also look at ways to encourage the pipeline of quality listings.
He shared that Singapore has 4,500 technology startups, 400 venture capital firms and 240 incubators and accelerators.
The idea is to up the incentives for listing on the local bourse and reduce the cost of listings and friction involved in the IPO process.
More IPO aspirants
Notwithstanding the review group’s efforts, SGX’s CEO Loh Boon Chye did have encouraging news for the IPO scene.
During SGX’s FY2024 earnings briefing, he said that companies have started to prepare for an IPO in Singapore.
FY2024 saw more catalysts that allowed more companies to consider listing here, and more mainboard aspirants are making preparations.
The measures above provide confidence that Singapore’s stock market can receive a boost from the efforts of the review group and changes in the macroeconomic environment.
In the medium term, these factors can enable the equities traded volume and value to improve.
Get Smart: Riding on the positive momentum
SGX is seeing healthy momentum in its derivatives division as its currencies and commodities volumes jump sharply.
The bourse operator is also a consistent generator of free cash flow and has recently upped its quarterly dividend.
With the MAS review group set up and conditions turning positive for the equities market, investors can look to better days ahead for the group.
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Disclosure: Royston Yang owns shares of Singapore Exchange Limited.
