SGX's H2 Earnings: A Divergence Between Revenue Growth and Net Profit Decline

The Singapore Exchange (SGX) has long been a cornerstone of Asia's financial infrastructure, but its H2 2025 earnings report reveals a nuanced story of growth and caution. While operating revenue rose 4.4% to S$688.4 million, net profit dipped 2.6% to S$308 million. This divergence raises critical questions: Is SGX's business model sustainable in a maturing market? Can its dividend policy withstand near-term headwinds? And does the 8.7% annualized dividend increase justify the profit decline? Let's dissect the numbers and strategy.

Revenue Growth vs. Profit Margin Pressure

SGX's operating revenue growth was driven by two pillars: fixed income, currency, and commodities (FICC) and cash equities. FICC net revenue surged 8.6% to S$321.6 million, fueled by a 25.3% jump in OTC FX net revenue. Cash equities revenue also rose 18.7% to S$392.7 million. These gains reflect SGX's strategic pivot toward high-growth segments.

However, profit margins were squeezed by a 20.4% decline in treasury and other revenue, which offset gains from trading and clearing. This highlights a recurring challenge: as markets mature, SGX must balance capital allocation between high-margin innovations and legacy cost structures.

Dividend Policy: A Calculated Bet on Shareholder Confidence

Despite the H2 profit dip, SGX proposed a final quarterly dividend of S$0.105 per share, up 16.7% from S$0.09 in H2 2024. If approved, the annualized dividend would rise 8.7% to S$0.375 per share. This move appears bold, but it's grounded in long-term logic:
1. Full-Year Resilience: FY2025 net profit grew 8.4% to S$648 million, with operating revenue up 11.3%.
2. Strategic Reinvestment: SGX plans to invest S$90–95 million in FY2026 for technology upgrades and capability building, signaling confidence in future cash flows.
3. Dividend Gradualism: A planned S$0.0025 quarterly increase from FY2026 to 2028 ensures sustainability without overburdening the balance sheet.

The 8.7% dividend hike is justified not by H2 performance alone but by SGX's broader trajectory. By prioritizing shareholder returns while reinvesting in growth, the company is hedging against short-term volatility.

OTC FX and Structured Products: The Growth Engines

SGX's OTC FX business is a standout. With average daily volume (ADV) hitting US$111 billion in FY2024—a 47% year-on-year jump—it now accounts for 7.5% of total income. This segment's 32% compound annual growth rate (CAGR) over three years underscores its potential to become a profit driver.

The integration of BidFX and MaxxTrader has accelerated digitization, positioning SGX as a leader in OTC FX workflow automation. Meanwhile, structured products like ETFs, depository receipts, and structured certificates are expanding SGX's appeal to both retail and institutional investors. These innovations are not just revenue streams—they're tools to diversify risk and capture market share in a competitive landscape.

Risks and Mitigants

Critics may argue that SGX's capital expenditures (4–6% higher in FY2026) and rising operating expenses could strain margins. However, the company's focus on technology-driven efficiency and strategic partnerships (e.g., with the Monetary Authority of Singapore) mitigates these risks. Additionally, the IPO pipeline and exploration of digital assets offer new revenue avenues.

Investment Thesis

SGX's business model is sustainable, but its success hinges on three factors:
1. Execution on OTC FX: Can it maintain its 32% CAGR while scaling infrastructure?
2. Cost Discipline: Will reinvestment in technology offset rising expenses?
3. Dividend Sustainability: Can earnings growth outpace payout increases?

For investors, SGX represents a high-conviction long-term play. The 8.7% dividend hike is justified by its full-year resilience and strategic clarity. However, short-term volatility—such as the H2 profit dip—demands patience. Those seeking income and growth should monitor SGX's capital allocation and OTC FX traction.

Conclusion

SGX's H2 earnings may have disappointed, but its full-year results and strategic initiatives paint a compelling picture. By balancing reinvestment in OTC FX and structured products with disciplined dividend growth, SGX is positioning itself as a resilient player in a maturing market. For investors, the key takeaway is clear: SGX's long-term value lies in its ability to adapt, innovate, and reward shareholders—even when the numbers don't always align.