SGX reported strong growth in top- and bottom-line numbers for their Q3 FY2015 yesterday, mostly beating market estimates. It’s no surprise that the derivatives business drove the strong numbers, with the lion’s share coming from the explosive 165% y-o-y increase in trading volume on the FTSE China A50 Index futures. Quarterly trading volumes on the FTSE China A50 contract are now more than 40% of total derivatives volumes for SGX. Operating profit margins were a bit of a letdown, as expenses grew faster than the top line, with an increase in salaries and investment in technology. A key worry for the SGX and their derivative business may be the ‘concentration’ on the China A50 future contract. There is already talk that competing derivative products on the China A50 - or on similar tracker funds and futures contracts with exposure to Chinese equities - may be launched in HK and various other futures exchanges. This, together with the need to address a stagnant domestic securities market, will be an issue that the next CEO will have to deal with. SGX shares may have moved ahead of these numbers, closing at S$8.52, up 2.65% yesterday. At these levels, the stock is priced at a forward price-earnings of 23X. This is a slight discount when compared with the HK Exchange and Clearing- the best performing stock year-to-date on the Hang Seng Index (+70%) - which is trading at a forward PE of 39X.
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