Singapore Exchange tumbles from 13-year high as profit drops

By Ishika Mookerjee

(Bloomberg) —Singapore Exchange Ltd. shares fell sharply from a 13-year high after the bourse reported a decline in annual profit.

Net income dropped 6% from a year earlier to S$445 million (US$329 million) in the year ended June 30 as expenses increased and sliding bond yields hurt treasury income, results showed Thursday. The stock slid as much as 6.9%, the most since May 2020.

The exchange has been expanding its fixed income, currency and index businesses through acquisitions as it diversifies from equities. It announced the purchase of foreign-exchange trading platform MaxxTrader last month and has been integrating another platform, BidFX, as well as index provider Scientific Beta Pte.

“Costs could stay elevated due to investment in its foreign-exchange business and climate initiatives,” Bloomberg Intelligence analyst Sharnie Wong wrote in a note. “SGX may need stronger trading volume across its product range to reach consensus expectations for 10% profit growth” this fiscal year, Wong added.

Prior to Thursday’s price drop, the stock was the second-best performer on Singapore’s benchmark Straits Times Index this year with a gain of 30%, as an increase in trading during the pandemic boosted business.

“We are investing in growth and that’s why you’ll see significant expenses in FY2021 and FY2022,” Chief Financial Officer Ng Yao Loong said at an earnings briefing. “This will lead to revenue outperformance” over the medium-term, he added.

SGX is making some progress on its business diversification. The combined revenue contribution from fixed income, currencies and commodities, together with data, connectivity and indices, increased to about 34% from 28% a year earlier.

Even as some of its acquisitions start contributing to revenues, the exchange is warning that costs could rise a further 7.5% to 9.5% in the current fiscal year. It’s setting up trading networks for forex and secondary bonds and helping to establish a carbon-offset trading bourse, among other initiatives.

The exchange is also awaiting regulatory approval of a framework to list special purpose acquisition companies.

The deals so far “will continue to allow SGX to grow and scale its FICC business,” said Rui Wen Lim, an analyst at DBS Bank Ltd. That will provide more stable contributions to revenue than cash equities and derivatives, Lim said.

© 2021 Bloomberg L.P.