Singapore Exchange cautious after modest rise in quarterly profit

The Singapore exchange is relying increasingly on its derivatives revenue, which soared 42 percent in the year to end-June and accounted for 38 percent of total revenue

SINGAPORE: Singapore Exchange Ltd (SGX) said it faces challenges from slowing Asian economies after reporting a 5% rise in second quarter profit on Thursday, and will pursue more IPOs by targeting key sectors such as technology and real estate.

“While market sentiment has improved, uncertainty around future US policies and slowing Asian economies will influence trading activity going forward,” chief executive officer Loh Boon Chye told analysts at a results briefing on Thursday.

The exchange reported a net profit of S$88.3mil in October-December, beating the average forecast of S$85.9mil from four analysts and up from S$83.7mil in the same period a year ago.

The bourse has taken measures to shore up market liquidity, improve the quality of listings and strengthen its regulatory framework after a penny stocks crash in 2013 battered investor confidence, but faces a tough task to improve trading activity.

Second quarter revenue rose 3% to S$199.6mil.

“Our results this past quarter reflect higher levels of market activities compared to a year ago as the conclusion of the US presidential election and clarity on interest rates environment brought participants back to the market,” said Loh.

SGX has developed into an Asian hub for listings of real estate investment trusts, which typically pay out strong dividends, but has struggled to attract large IPOs while poor valuations have also led to a number of delistings over the past few years.

“We just need momentum in terms of IPOs coming through and then you have got to pick your sector strengths in the context of the economic outlook,” Loh told Reuters.

Loh said SGX was targeting technology, infrastructure and real estate companies and some consumer firms aimed to have a market valuation of over a billion Singapore dollars.

Fundraising in Singapore via IPOs recovered to US$1.7bil last year, Thomson Reuters data showed, after slumping in 2015 to its lowest since 1998.

Lo, a former banker, took over as CEO in 2015 and last year the bourse outlined plans to allow listing of dual class share structures, but some investors have criticised the move as these typically give one set of shareholders greater voting rights than others.

“If Singapore as a country is keen to position itself as a hub for tech, biotech and fintech, the thinking must surely be that once you attract all these fintech companies to Singapore, you should provide a platform for them to list,” said David Smith, head of corporate governance at Aberdeen Asset Management, which has criticised SGX’s proposals.

SGX lost out on the IPO of Manchester United to New York in 2012 because the soccer club owner could not obtain approval for a dual class share structure. The Singapore government then amended its laws to allow such structures.

On Thursday, bigger rival Hong Kong Exchanges and Clearing (HKEX) surprised markets by outlining a proposal to launch a third board that would potentially allow firms to have different shareholder structures, such as weighted voting rights, as part of a broader effort to boost listings.

HKEX’s CEO Charles Li told the media in Hong Kong that the bourse was home to too many mainland Chinese, small caps, and financial and property companies, and had to find a way to attract new issuers particularly so-called “new economy” companies. - Reuters