The Singapore Exchange (SGX) reported on 25 October a set of results that pleased most analysts and investors alike.

For the first quarter of FY18, SGX reported operating revenue which saw 7 percent year-on-year growth to $204.5 million while net profit rose 9 percent year-on-year to $90.7 million. On a quarter-on-quarter basis, SGX posted a lower revenue in 1Q18 compared to 4Q17 – $204.5 million versus $207.7 million – while profit jumped from $85.2 million to $90.7 million.

This suggests that cost-cutting measures had probably lifted the profit from a quarter ago while businesses had shown broad-based improvement from a year ago.

Quarter-on-quarter more relevant?

While business activities had apparently grown from a year ago, it is apparent that the growth may not be sustainable as 1Q18 trading activities failed to improve from last quarter. This is not a sign of overall volume growth for SGX.

Businesses tend to experience year-on-year as well as quarter-on-quarter growth in an uptrend cycle but 1Q18 performances have put a dampener on such expectations. According to UBS, net profit in 1Q18 was the highest in eight quarters but it missed estimates due to a decline in average clearing fee both in securities and derivatives. This suggests that trading volume in these segments, which is evident for all to see despite the surge in the Straits Times Index, continue to be lackluster.

Management still upbeat

Despite citing competition in various segments for the “below consensus” performance, SGX remains upbeat about its performance going forward.

Adding on to its prospects, SGX also said that it expects market activities to return to the higher levels of past years as well as more opportunities to collaborate with other exchanges.

While we share SGX’s buoyant mood, we opine that the 1Q18 miss and the negative revenue quarter-on-quarter growth remains key dampener. Unless trading volume picks up significantly in the next corresponding quarters, we remain cautious but is still encouraged by SGX being a good dividend play.

Dividend attractive for heavyweight

In Issue 570 of Shares Investment, we wrote that SGX’s dividend yield has ranged from 3.2 percent to 4.2 percent during the period of FY13 to FY17. At the current price of $7.69, it yields 3.64 percent – still somewhere in the middle range of its past five-year yield returns.