SGX(SPXCY) - 2024 Q4 - Earnings Call Transcript

Financial Performance - Group revenue increased by 3.1% to approximately S$1.23 billion, driven by strong growth in currencies and commodities, while adjusted expenses rose by 2.5% to S$604 million, resulting in a 4.5% increase in Group earnings to S$526 million [2][3][4] - The derivatives franchise, which includes equities, commodities, and currencies, accounted for about 45% of total revenue, with revenue from derivatives growing by approximately S$12 million or 2% due to an 8% increase in volumes [3][4] - Treasury Income (TI) was slightly lower year-on-year, and excluding TI, Group revenue growth would have been 3.6% [4][5] Business Line Performance - The Fixed Income, Currencies, and Commodities (FICC) segment now accounts for 26% of total revenue, with a growth rate exceeding 20% per annum over the last three years [9][21] - Revenue from equity derivatives decreased by 8%, contributing about 27% to total Group revenue, primarily due to lower volumes in Nifty derivatives [10][11] - Cash market revenue declined by 2% due to a 4% drop in securities traded volume, maintaining a 27% contribution to Group revenue [11] - Platform revenue grew by 6%, driven by increased market data and connectivity services, contributing 20% to total revenue [11] Market Performance - The average daily volume (ADV) for OTC FX increased by 47% to US$111 billion, surpassing the target of US$100 billion [4][23] - Commodities volume grew by 50% year-on-year, with iron ore contracts seeing significant adoption [23][24] - Open interest for listed FX futures increased by 76% year-on-year, with notable single-day volume records for RMB and Indian rupee futures [22][30] Company Strategy and Industry Competition - The company aims to grow Group revenues excluding treasury income by 6% to 8% CAGR in the medium term, focusing on low to mid-teens growth in OTC FX and exchange-traded derivatives [33] - The multi-asset strategy has proven effective, with FICC, equities, and cash equities derivatives collectively contributing 80% of total revenues [20][21] - The company is exploring opportunities for M&A while maintaining a focus on organic growth and enhancing its product offerings [66] Management Commentary on Operating Environment and Future Outlook - Management highlighted the importance of a collaborative ecosystem to enhance market liquidity and investor engagement [39][45] - The company expects to manage expenses effectively while investing in modernization and infrastructure upgrades, with CapEx projected to increase to S$70 million to S$75 million in FY '25 [17][18] - The outlook for treasury income remains uncertain due to external factors, but the company is focused on growing its derivatives business [56][58] Other Important Information - The Board proposed a final quarterly dividend of $0.09 per share, bringing the total dividends for FY '24 to $0.345 per share, representing an annualized increase of almost 6% [18] - The company has set aside S$8 million for initiatives aimed at improving the vibrancy of the securities market, which may not become a recurring expense [8][43] Q&A Session Summary Question: Thoughts on the MAS-sponsored review of the equity market - Management emphasized the need for a collaborative ecosystem approach to enhance liquidity and demand in the stock market, rather than relying solely on SGX's initiatives [36][39] Question: Clarification on trading technologies and their valuation - Trading technologies play a crucial role in connecting global users to various futures exchanges, and their recent revaluation reflects their expanded business and importance in the ecosystem [37][40] Question: Details on the S$8 million provision for securities market initiatives - This provision is aimed at supporting the broader ecosystem and enhancing market vibrancy, and it is considered a one-off expense [43][44] Question: Expectations for more listings this year - Management noted a low base in previous years and indicated that companies are preparing for IPOs, with a more favorable macro environment expected [46][47] Question: Insights on capital expenditure and its impact on operating expenses - Management acknowledged that increased CapEx will likely lead to higher OpEx due to depreciation, but they aim to manage overall expense growth [49][50] Question: Future dividend growth expectations - The company aims for mid-single-digit CAGR growth in dividends, contingent on revenue and net profit growth [51][66] Question: FX ADV target and growth potential - The company aims to increase the contribution of OTC FX to mid to high-single-digit percentages of Group EBITDA in the medium term [54] Question: Treasury income outlook amid rate cuts - Management indicated that treasury income is influenced by various factors, and they prefer to focus on growing the derivatives business for more predictable income [55][58]