Outlook for SGX bearish

1Q profits probably down by 18% to $81.3m, says analyst.

SGX's 1QFY17 earnings report is scheduled to be announced after market closes on Oct 19, but may prove bad news.

CIMB analyst Jessalyn Chen forecasts SGX to report an 18% YoY drop in net profit to $81.3 million for 1QFY17. This will account 22% of full-year forecast.

"Although SGX’s share price has fallen 8% since its peak in April, we still see downside risk amid sustained weakness in securities and derivative volumes,” says Chen.

Chen expects market activity to remain subdued, going into a seasonally weak quarter on three main reasons.

First, Chen said that Securities average daily value traded (ADVT) continued its decline in 1Q17 post-Brexit. It fell a further 3% QoQ to $988m, which is way below CIMB's $1.1bn forecast.

Derivative traded volume was also down 6% QoQ to 40.1m contracts in the first three months on the back of weak demand for China A50 futures, Nikkei futures, Nifty futures, iron ore futures and FX futures. All posted negative QoQ growth.

Lastly, Chen believes that Baltic Exchange acquisition will "unlikely to move the needle".

SGX’s deal to buy market-information service Baltic Exchange for 87 million pounds ($153 million) is expected to be completed toward the end of November.

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