It is a tough start to the New Year as worries over China’s GDP growth and property crisis dog the stock market.
The bellwether Straits Times Index (SGX: ^STI) has declined by around 3% since the beginning of 2024.
Despite this dip, Singapore Exchange Limited (SGX: S68), or SGX, saw its share price scale a 52-week high of S$9.98 recently.
The bourse operator saw a good start to the year but investors may be wondering if the blue-chip group can continue its momentum.
We dig deeper to determine if SGX can continue to do well in 2024.
A robust set of earnings
First, let us recap SGX’s latest earnings for its fiscal 2023 (FY2023) ending 30 June 2023.
The group reported an 8.7% year-on-year increase in revenue to S$1.2 billion for the fiscal year, driven mainly by a 27.2% year-on-year jump in derivatives revenue.
Net profit climbed 26.5% year on year to S$570.9 million but after stripping out exceptional items, net profit grew 10.3% year on year to S$503.2 million.
SGX generated positive free cash flow of S$392.4 million for FY2023, although this was lower than the prior year’s S$539.4 million.
In line with the strong results, the stock exchange operator raised its quarterly dividend to S$0.085, up from S$0.08 previously, bringing its annualised FY2024 dividend to S$0.34.
CEO Loh Boon Chye attributed the good results to SGX’s multi-asset business which has remained resilient in a tough macroeconomic environment.
Global investors are turning to SGX to manage portfolio risk, and the group’s widening slate of products is proving attractive to these investors.
SGX aspires to be a trusted pan-Asian access market platform and to be a global leader in Asian derivatives across commodities, currencies, and equities.
Encouraging monthly statistics
SGX reports monthly market statistics and its recent releases have been encouraging.
November 2023 saw record commodity derivatives volume along with higher foreign exchange (FX) futures volume that helped to increase the group’s overall derivatives volume.
Commodity derivatives volume jumped 48% year on year in November to a new record high of 5.4 million contracts.
SGX’s flagship iron ore derivatives suite also recorded its second-highest monthly volume ever during the month.
For the recent December 2023 market statistics released just this week, SGX saw derivatives volume rise 6% year on year to 21.1 million contracts for the month.
Derivatives daily average volume (DAV) climbed 13% year on year to more than one million contracts.
SGX also enjoyed growing open interest in its equity futures, with the FTSE Taiwan Index Futures open interest surging 70% over the October to December 2023 quarter to 144,000 lots.
Its iron ore derivatives volume also hit a record high for calendar year 2023, climbing 43% year on year to 4.4 billion metric tonnes.
These sets of numbers are an encouraging sign that SGX derivatives’ positive momentum can carry on into 2024.
Business development initiatives
In addition to organic growth, SGX also undertook various business development initiatives to grow its business further.
July 2023 saw the maiden listing of three Singapore Depository Receipts (SDRs) as part of the Thailand-Singapore depository receipt linkage.
SDRs are a tie-up with the Stock Exchange of Thailand (SET) to make it more convenient for Singapore investors to purchase shares of blue-chip Thai companies.
SGX has also beefed up its exchange-traded funds (ETFs) segment in recent months.
In September last year, the bourse operator partnered with BlackRock (NYSE: BLK) to launch a landmark climate action ETF.
This ETF is suitable for investors who wish to incorporate low-carbon transition objectives within their portfolios.
Just last month, SGX listed two new ETFs with combined assets under management of S$56 million in a collaboration with the Shanghai Stock Exchange (SSE).
This ETF allows investors to access large-cap and dividend-paying companies listed on the SSE, opening more options for Singaporean investors to park their money.
SGX is also readying the listing of a new product – active ETFs.
These ETFs are constructed based on an investment manager’s expertise rather than tracking an underlying index and offer investors the chance to enjoy a better performance than what the index offers.
These business development initiatives should help to expand SGX’s range of products even as the multi-asset exchange operator announced a new corporate structure to accelerate growth.
A commitment to increasing revenue and dividends
SGX is morphing into a choice destination for multiple asset classes and is gearing itself to be the preferred venue for Asian equity derivatives.
Its slate of commodity and FX products is also impressive and the group continues to expand its ETF product range.
Management is targeting a high-single-digit % increase in revenue over the medium term.
The dividend per share should also rise by mid-single-digit % subject to earnings growth.
If these two objectives are met, investors should enjoy steady capital appreciation along with a higher passive income flow.
Get Smart: On the right track
SGX appears to be on the right track for growth, though some of these initiatives may take time to bear fruit.
Barring unforeseen circumstances, investors should feel confident about the group’s efforts that could see its share price momentum carrying on for 2024.
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Disclosure: Royston Yang owns shares of Singapore Exchange Limited.
