At First Glance SGX's First-Half Net Profit Disappoints Slightly but Long-Term Intact; FVE Unchanged

While Singapore Exchange’s first-half net profit decline of 3% year on year may look disappointing, this reflects market conditions and we believe second-half operating margin should improve. Revenue trends were in line with our expectation with higher commodities and currency turnover, offset by a weaker equity market. The latter also resulted in lower volume for equity related derivatives contracts. Our fair value estimate of SGD 11.20 is unchanged, along with our revenue assumption, which already assumes weaker capital market conditions. We continue to expect the exchange to increase revenue at CAGR of 9% over the next five years, supported by increasing turnover for the derivatives portfolio, including equity related, commodities and foreign exchange products. We continue to believe SGX is undervalued, with the higher growth from a broadening product portfolio not factored into SGX’s current share price.