SGX's net profit predicted to decline 14% to $79m

Blame it on reduced small-cap activity.

According to CIMB, it expects SGX to report a relatively weak 2Q on 22 Jan. CIMB estimates 2Q net profit declined 14% qoq to S$79m.

Here's more:

This is only expected as 2Q is seasonally weak, with ADVT averaging only S$1bn/day.

SGX is due to announce its 2Q results in two weeks’ time. We expect the results to reflect diminished small-cap activity compared to the prior quarter.

1QFY14 was carried by higher securities clearing rates when small-cap activity ballooned. A lot of that has since waned. Given this, coupled with the seasonal December lull, securities ADVT for 2Q was only S$1bn/day (-24% qoq).

Lower securities clearing fees were the main reason for our expected 14% qoq decline in quarterly profits. However, derivatives activity held up decently.

Derivatives where we are most positive. We are more positive about the derivative business vs. the cash equity business. Total derivative volumes (8.72m contracts/month) in 2QFY14 were relatively flat qoq but 18% higher yoy.

SGX has consistently reported higher open interest, signalling great customer traction over the quarters. Catalysts ahead will be the new Philippines and Thai contracts as well as other new contracts.
Listing fees increase lends tailwinds. The second earnings catalyst will be the effect of higher listing fees. This will have a more noticeable impact in 2H, when the full effect of the phased hike sets in.