Singapore Exchange Limited (S68) Earnings Call Transcript

Very good evening to everyone joining us here today, both in person and via the webcast. I'm Liana from Investor Relations. Welcome to SGS Group's FY 2026 Full Year Results Briefing. In a while, I will invite our CFO, Mr. Daniel Koh, to present the financial highlights followed by our CEO, Mr. Loh Boon Chye, who will present the business update. Following the presentation, we will have a Q&A session with SGX senior management. [Operator Instructions] It's now my pleasure to invite Dan to present the financial results. Dan, please.

Good evening, everyone. Thank you for joining us here today. It is a real pleasure to share with you SGX Group's standout performance for financial year 2026. We achieved another milestone year, delivering our highest ever full year revenue and earnings. Net revenue grew by 14% and adjusted earnings grew by 25%, continuing the strong momentum from a high base in FY '25. Net revenue for our equities cash business, or SGX Stock Exchange grew significantly by 28% as the securities daily average value rose 35% to its highest level in 18 years. This strong performance was built on structural market changes and focused execution. FX delivered another record year with net revenue increasing 12% on average daily volume of USD 190 billion, driven by client expansion and platform innovation. Currencies and commodities continued its strong growth trajectory, led by record volumes of several products, including CNH and INR currency futures, iron ore, freight petrochemicals and AV contracts. Equity derivatives net revenue was comparable, maintaining momentum from a record high base last year as our flagship China and India index franchises continue to capture risk management needs. Expenses increased by approximately 6% at the higher end of our guidance as we stepped up our investments. I will elaborate on the key cost drivers shortly. More importantly, we remain focused on operating leverage as the business scales. We are confident in delivering medium-term growth. We expect broad-based growth across all operating segments in FY '27 as our diversified multi-asset strategy positions us well to deliver strong performance amid ongoing global uncertainties. We remain disciplined in capital management, balancing strategic investment and shareholder return. In FY '27, we expect expenses to increase by 6% to 8% alongside CapEx spend of approximately $100 million. This is important to support our long-term growth and competitiveness. At the same time, I am pleased to announce that due to this year's capital recycling gains, the Board has proposed a one-off additional dividend of $0.125 per share in addition to the previously guided fourth quarter dividend. This brings FY '26 total dividend to $0.57 per share, representing a 52% increase from the last financial year. Our strong balance sheet supports our plan to redeem our outstanding bonds in FY '27 while positioning us well to pursue business opportunities. Now let us walk through the headline financials. Group net revenue increased by 13.9%. Group expenses on an adjusted basis increased by 5.5%. Group NPAT on a reported basis increased by 7.8%, while on an adjusted basis, it increased by 24.6%. Our margins continued to improve. Adjusted operating profit margin and adjusted NPAT margin increased by 3.1 percentage points and 4.4 percentage points, respectively. Let me now elaborate on the group's net revenue performance across our 4 operating segments. Our FICC revenue grew $55 million or 17%, accounting for 25% of total revenue. I had touched on the record volumes of SGX FX, commodity and currency derivatives earlier. The breadth and depth of our multi-asset product suite and global client network position us well to capture increased risk management needs during heightened uncertainties. The equities cash revenue grew by $100 million or 28% and contributed 34% to total revenue. The strong growth in SDAV reflected positive structural trends including stronger fundraising activity and higher levels of participation across investor segments. Equity derivatives revenue was comparable year-on-year, maintaining last year's high base and accounted for 23% of total revenue. Equity derivatives volumes increased by 6%, driven by sustained demand in China A50, Gift Nifty and Taiwan contracts. The higher trading and clearing revenues were offset by lower treasury income. Platform and others revenue increased by 7%, driven by higher data and colocation sales and higher fees since second half of FY 2025. This segment has grown at a steady average rate of 5% over the past 3 years. Moving on to expenses. Adjusted expenses increased by 5.5% as we increased resources to support growth initiatives. Total staff costs increased by $27 million in both fixed and variable portions due to merit increments, higher head count and higher profitability. Technology expenses increased on various upgrades and system enhancements. Adjusted expenses were $19 million lower than reported expenses because it excludes amortization of intangible assets, transformation-related costs and other one-off items. The transformation is focused on enhancing our technology capabilities as part of our strategy for future growth. This will be an area of focus for the next 2 years as we continue to invest here. Adjusted earnings reflect our underlying core performance by excluding noncash and other adjustments. First, we removed a noncash net fair value gain of $10 million, in line with our announcement in the first half of FY '26 relating to the sale of trading technologies in July '25. Second, we added back Scientific Beta's FY '26 impairment charge of $53 million given divestment on the 8th of July 2026. This transaction underscored our disciplined approach to capital management as we sharpen our focus on growth priorities. Lastly, we added back $18 million, consistent with items elaborated in the previous slide on expenses. Turning to capital management. We remain disciplined and proactive in deploying capital to create long-term value. Our strong execution has delivered a consistent growth track record while we undertake strategic capital recycling initiatives. We maintained a balanced approach, continued investment in growth opportunities while delivering sustainable returns to shareholders. Turning to how we invest to growth organically. We will continue to deploy capital into opportunities that strengthen our competitive positioning. FY '27 CapEx will increase to $100 million, reflecting targeted investments in product innovation including the expansion of our SX FX franchise and goal initiatives, platform modernization and enhancing enterprise capabilities. In line with these, FY '27 expenses are expected to increase by 6% to 8% as we continue to invest in technology and talent to drive growth. Now moving on to shareholder return. We remain fully committed to a sustainable and growing dividend and are confident to deliver the dividend growth trajectory of $0.025 increase every quarter to FY '28 as previously guided. As highlighted earlier, the Board proposes a $0.125 one-off additional dividend from capital recycling gains this year, an amount higher than the fourth quarter planned dividend. This rewards our shareholders for your continued trust in SGX. FY '26 total dividend will be $0.57 per share, a 52% increase from FY '25. With that, let me now hand over to Boon Chye, our CEO, who will deliver the business updates. Thank you.

Good evening, and thank you for joining us. As Daniel has shared, FY 2026 was a strong year for SGX Group, our performance demonstrates the strength of our multi-asset strategy that we've been executing over the past decade. We are deliberately built a broader, more resilient and more global business. As a result, we are able to capture new opportunities across changing market environments. As we look ahead, global capital markets are being shaped by major structural shifts. Geopolitical uncertainty remains elevated as capital allocation to Asia continues to grow. Global investors are seeking cross-asset solutions and more efficient ways to manage their risk. Concurrently, rapid innovation is reshaping market infrastructure and client expectations. These strengths underscore the relevance of SGX long-term strategy. We are uniquely positioned to help clients mitigate uncertainty across investment opportunities and connect capital across markets. To maintain this leadership and drive sustainable growth, we are investing with discipline across products, platform and enterprise capabilities. Our established derivatives franchise is where the benefits of our global multi-asset business are most evident today. In FY '26, we delivered another milestone year as we broaden and deepen our market leadership. The deep and diverse liquidity across our franchise, ankle's global participants with activity increasingly extending beyond Asian trading hours. T+1 volumes have risen from 18% in FY 23% to 22% today, reflecting broader international participation. It listed FX, we see robust momentum. Volumes in our listed FX franchise has grown at 38% CAGR over the past 3 years as clients navigate heightened geopatical and macroeconomic cross wins. Our RMB and rupee contracts are the second and eighth most traded FX futures contracts in the world. Adding to these flagship products, our fast-growing Korean won futures with derivatives daily average volume growing at a 3-year CAGR of 77%. In a world where Asia is gradually shaping global capital flows and currency markets, SGX has become the exchange where global participants come to manage Asian FX risk. For commodities, geopolitical risks are redefining the role of this asset class in global portfolios was seeing a critical inflection. Financial participants now represent over half of our trading volumes with more than 70% of all futures volumes traded on screen enabling robust price discovery and furthering liquidity. Our commodity derivative volumes have expanded at a 24% 3-year CAGR anchored by iron ore. In equity derivatives, our strength lies in the scale and liquidity we have built across key Asian equity benchmarks. Liquidity attracts liquidity, creating powerful network effects that are difficult to replicate. In Greater China, our China ACT contract remains the most liquid international futures contract for Chinese equities, anchoring substantial pools of liquidity as DAV grew 9% year-on-year in FY '26. Our Taiwan Fishers contract is the most likely traded international futures, tracking one of the world's most important technology ecosystem with almost 90% market share by volume and open interest. This has allowed investors to express their market views on the global chip industry, AI and digitalization. We introduced micro talent futures to provide more precise and cost-efficient access for a broader range of participants and has since applied this approach for our Japan and Singapore benchmarks. To maintain this growth, we are accelerating product innovation and deepening our partnerships with global index providers. This allow us to expand our product shelf in areas where we're seeing evolving customer demand and long-term opportunities. In FY '26, we further expanded our partnership with FTSE by launching Asian government bond futures, tracking, FTSE's Asia Pacific liquid government bond index series, extending our derivatives offering into fixed income and providing clients with another way to manage Asian market exposure. By the end of this calendar year, through an enhanced licensing agreement with MSCI, we will introduce new contracts that span a wide range of global markets, sectors and teams. Our long-standing relationship with S&P Global Platts has been instrumental in establishing global recognized benchmark contracts across iron ore coking coal, petrochemicals and other energy products. Alongside these partnerships will leverage capabilities within our own index business, IH, to launch crypto perpetual futures in FY '26. Our crypto perpetual futures are an example of how we are extending our relevance into new structures and asset classes by building adjacent ecosystem around franchises where we already have strong market positions. Looking ahead into FY '27. Goal is another natural adjacency for our commodities franchise. We are building a more comprehensive ecosystem with the industry and MAS, the bill the OTC go market and it deliver futures contract, providing clients with more ways to access and manage goal exposure, while developing Singapore as a leading go hub. In parallel, we're seeing opportunities to expand cross-asset participation. Our multi-asset platform enable clients to manage their risk and investment needs more holistically. By leveraging our insights and connectivity across our platforms and markets, we can anticipate client needs and deliver more tailored solutions as client engagement deepens so to our relationships and ability to capture a greater wallet share. Let me now move on to SGX FX where our client-centric approach is delivering strong results. SGX FX was the fastest-growing exchange backed OTC FX platform in FY '26 with average daily volume at USD 190 billion, a 36% CAGR growth from FY '23. What is notable is the quality of this growth. We saw strong broad-based expansion in both bank and nonbank segments with EMEA and the America driving faster revenue growth. Going forward, we will elevate our client proposition by strengthening our competitive modes. First, we are enhancing the synergies between our OTC and listed FX franchises. This includes making it easier for clients to move between bilateral OTC execution and listed FX features through our exchange for related positions are known as FRPs and enabling participants to transfer risk efficiently while reducing friction, lowering costs and improving capital efficiency. In addition, we will further expand our client coverage building on the strong traction in newer markets we have entered, such as the Middle East, Korea and Brazil. Finally, we are enriching our offerings in emerging market currencies, options, capability, data and API-based services. Together, these initiatives position SGX FX for continued growth as we meet clients' needs for greater connectivity, integrated workflows and deeper liquidity. While our derivatives and FX businesses scale globally, we are equally focused on sustaining the momentum in our stock market. FY '26 was an exceptional year for our stock market, marked by improving participation, liquidity and trading activity. Securities daily average value, or SDAV grew substantially across all investor and stock segments. Retail participation reached a 5-year high while institutional interest has broadened beyond the STI index constituents. Small and mid-cap activity has strengthened with institutional inflows into this segment growing 3x. This reflects the combined impact or better research coverage, stronger issuer engagement and growing investor attention. On the issuer side, the IPO pipeline is strong. We welcome 21 new listings in FY '26. In our pipeline, we see interest from diverse sectors, including digital infrastructure, health care and consumer, real estate services and REITs. What is encouraging is the stronger institutional participation in IPOs, including support from EQT fund managers and long-only investors. Together, we will value unlock movement and other initiatives to grow demand and supply. We continue to work with the ecosystem to drive sustainable liquidity while also expanding the ways investors can access opportunities through SGX. Initiatives such as the global listing Board across the single ETFs and SDR expansion to include U.S. listed stocks, further enhance SGX connectivity with global and regional markets. These efforts are mutually reinforcing. Greater participation improves liquidity, which attracts higher quality listings, reinforces, investors' confidence and, in turn, drive deeper market engagement and creates virtuous cycle. We're committed to creating a more vibrant and connected stock market that reinforces Singapore's position as the leading capital markets hub. The progress in our stock market, together with the momentum across derivatives, FX and commodities reflect the broader SGX story. We have significantly transformed the composition of our business. Our overlapping -- our overall operating revenue base has nearly doubled, growing from just over $800 million in FY '16 to more than $1.5 billion in FY '26. Importantly, this growth is driven by multiple businesses across the group. Our strong performance provides a solid foundation to capture the next phase of growth. First, we will continue to innovate around franchises where we already have liquidity and leadership, creating new ways for clients to access markets, manage risk and deploy capital. Second, the scale of our franchises give us a strategic view of how capital risk and liquidity move across market as clients increasingly invest across asset classes, we will harness the data we have to secure a larger share of our clients' trading portfolios. Alongside this, we are focused on executing the stock market initiatives that are underway. In close collaboration with market participants, we will work on translating the momentum in our stock market into enduring and sustainable liquidity. Finally, we will enhance our enterprise capabilities by investing in technology, data and automation, including AI. This will enable operational efficiency strengthen decision-making and build a more agile, future-ready SGX. At the same time, we're also investing in product innovation and platform modernization, as mentioned by Daniel earlier. FY 2026 was another year of growth for SGX Group. Notwithstanding market conditions, we are confident that we focus and consistent execution, we will capture the opportunities ahead of us. Thank you for your attention, and I invite my colleagues and I to take questions now. Yes. Nick, you can have the first question.

Congratulations on a very strong set of numbers. Can I go on to or talk a little bit about costs? Because you've obviously signaled in this presentation, huge opportunities ahead of the revenue side and obviously, therefore, there's a need to invest. So I wonder if we could do 2 things. First of all, can you talk a little bit about the process that you and Daniel will go through when you're giving this money to people, you obviously want to return. So could you talk about how that works and what sort of return you're looking for on the additional spend and how you're going to measure people and make sure that return comes through? And then I guess the second thing is that a lot of this is about technology and investing in technology I get is also investing in people and products and things like that. And you've got a new CTO. So I wonder if you could talk a little bit about some of the technological changes that are happening in the exchanges world and what you need to do and what you're doing to sort of meet those challenges?

Thank you for the question, Nick. First, I think in the last 2 years, as we have mentioned in briefings, the cost base was lower, I think, on 2 considerations, one in the timing of hiring of additional staff. And then two, in terms of the full year impact, and that's clearly not sustainable. But I think more importantly is our increased focus will be Asia or nimble to react to increasingly client needs and thereby will continue not just to invest in capabilities in people but also in technology upgrade, which then relates to your second question. In the world where AI is evolving and changing client needs and the environment of Phase 3, the ability and agility to bring an idea from conception to Eventure product probably has to shrink quite a bit. And in that, the debt development clearly has to shift the words more of a product-led enabled by engineering capabilities, and that's what we are looking and will do in the next 2 to 3 years. And we're starting not just right now, but in the last few months. And given the structural shifts that we're seeing in various markets, we are confident that this investment is well made. But importantly, I hope we have also demonstrated as a group, as a team, a continued disciplined focus on cost, very consistent execution and then very targeted focus to capture the opportunities that we see. I hope that answered your question. Okay, Jayden and then one in front later on.

Just a couple of questions on the equity derivatives piece. First of all, I think there was 6% growth in the volume, the clearing fee declined so the revenue was comparable. Do you want to sort of talk if there was anything that was one-off and if we should expect that to recover? Maybe some more color on that. And my second question, sort of in the same business line. I think you mentioned during the presentation, Boon Chye that there'll be a new suite of products with MSCI. I remember years ago, there was a partnership and then there were some changes. So it would be really good to understand how that partnership might take place and what we should expect?

Yes. So part of it is just dollars versus reported currency in sync and part of it is just the customer mix. So in the environment with equity derivatives, we had a larger mix of customers who were on polymetric and that accounted for -- and typically, when you look through cycle, this doesn't sustain like that because markets tend to settle good air pockets. So apart from the FX, we're pretty relaxed about the mix.

Jayden to your second question. First, we're very focused on global partnerships with the index provider. So it's not just MSCI, it's FTSE Russell and S&P Global Platts. But to answer your question, as I also mentioned, increasingly, with the environment of Phase 3 clients no longer just manage risk in siloed or concentrated regional portfolio. Requirements has broadened. And to Nick's earlier question, we also need to think about from a product ideation to true execution and launching that clearly has to shorten. And part of the MSCI suite of indices or contracts that were launched by the end of this calendar year is to stretch in cases beyond Asia, so be across market, across countries. And then within Asia, be across thematics, across sectors because increasingly, that's what investors expect. We want to clearly be the leader for all access into Asian economies and markets, but I think we're going to build adjacency from our strength.

I'm Felicia from The Edge Singapore. Congrats on the results. I have a few questions, sorry. So the first one is, do you guys have any update on the third tranche of EQT fund management because the third tranche would be coming up? Do you want me to take that one by one? Or you want me to ask all at once?

I think one by one that we don't lose track.

I think [indiscernible] indicated, I believe Q3 so we are eagerly awaiting the announcement.

Okay. And the second question is do you have any updates on the pipeline for the Global Listing Board?

So Global Listing Board, of course, is live now fully operationally ready. A number of companies have started preparations towards a listing on the we would hope that, that translates into actual listings in the next while, let's say, in the remainder of this year. But of course, timing around these things is always tricky. There's a lot of factors that play into that market circumstances and other factors. So that's what I would say. We are generally very encouraged by the type of discussions that we're having with candidate issuers for the GLB.

Sorry, just a follow up. Do you have a sense of the sectors are you able to share?

Yes. Naturally, because this is, of course, a link together with NASDAQ, the goal is for this board to attract more higher growth companies, and that is also reflected in the types of discussions that we are having with companies that are interested in this.

Sorry, 2 more, I promise. The third one is, so Singapore, we have welcomed IPOs this year, obviously, so far. But do you have any thoughts on the post-IPO performances so far because there's a mixed bag?

Yes. So we are in the phase of rebuilding our market, growing market confidence. And so data points do tend to be amplified, good and bad data points. I think that's the first point I want to make. Second, I think the feedback from the market disputes, including issuers, clearly, indicates that the day 1 performance is not the only thing that they look at. It's about the post-market structural liquidity, the level of investor participation, research coverage. And this is where the GEMS research program value unlocked and so on, programs are designed to deliver. The third thing is I think some things do get conflated when these things happen. So the quality of the companies that come online or list versus the price discovery process, which is the IPO. So I think when we look at the 21 companies that have listed, I think, by and large, we can say that this company is that we welcome to SGX. So then it comes down to the price risk process, which is the IPO and then you have it on day 1. There's always been feedback on things, whether we can tweak and improve things. I think there are things around information that can be made available, whether it's sooner. So I think [indiscernible] has made changes to allow preliminary prospectus to be made available to retail much earlier. Can we think about providing research earlier on in the process or immediately post IPO? So these are the things we think about. These are tweaks. If we can make more information available and can engage a wider public, a wider investing group of participants. And I think that's helpful that the price is going to be processed. Maybe one last one and I think next to you this one. We'll take some online.

And do you have more color on the sale of scientific data, sorry, because there was a very short release on July 8 announcing the sale. But do you all have any color on it? Was there a particular moment of realization that led to the sale?

Yes. So when we invested first in Scientific Beta or for any investment is to really to grow our adjacency or deepened mode. Scientific retail is a very research-focused index provider. And over the months that we have, we have realized that the very research focused, high-quality factor indices reaches only a certain segment of customers where SGX has a broader set of customers. And given our very focus on growing our performance across different asset classes and a focus on capital allocation, we decided that Scientific Beta with the new owner, which is also essentially an index company would allow Scientific Beta to continue in their journey on research-based indices and grow.

[indiscernible] Just to follow up questions. Do you think that this post-IPO mixed back performance were that affects like better sentiments or the companies like listing listings sentiments. And then also, like can you share a bit more about the pipeline of companies or IPOs for the second half of the year?

Maybe share the sectors. Maybe I'll take the second question, and it's somewhat linked to your first question. Certainly, from an issuer perspective, we see that companies are still very much engaged when it comes to their listing plans. So we haven't really seen an impact. In fact, the pipeline keeps growing. We've got about 50 companies now that are various stages of engagement and preparation. So that has grown from where we were at this point last year. That's very encouraging.

5-0?

5-0. Yes. Not 15, 5-0. The other encouraging thing around this is the greater diversity that we are seeing. So Boon Chye mentioned a couple of the sectors there. To give you a bit more context, we're now within the pipeline by a number of companies, we see about 1/3 of them in the consumer and health care sectors. About another 1/3 are in tech advanced manufacturing and digital infrastructure. So that's certainly a part of the market that is growing for us. And then 1/4 is in real estate, of course, a market in which we've built a very strong track record and still continue to see deals happen there. And then the rest is fairly balanced across other sectors.

So I'll come back to the point that issuers take into account the range of data points they get. So it's not just about day 1 performance. I think it's about the entire ecosystem support and liquidity that they can get. So I don't think that in other respects, we do rank quite well in the other things that we are able to provide. So it's not just one data point, but a more comprehensive set of data points that people tend to look at.

Maybe take 1 or 2 questions from online. .