SGX

Fair Value: S$6.20

Active efforts to grow operation.

In the past few months, we have seen a slew of announcements from SGX, be it for new products (including the listing of another Shipping Trust and more ETFs, etc) or other new initiatives.The unrelenting pace of strategic relationships includes the recent purchase of a 5% stake in Bombay Stock Exchange (BSE) and two MOUs with the Hanoi Securities Trading Center and Ho Chih Minh City Securities Trading Center. Besides the above, it has also recently lowered securities clearing fee from 0.05% to 0.04% with effect from March 2007, and we view this lowering of transaction costs as being responsive to market needs.

 

Maintain HOLD.
As trading momentum looks sustainable thus far in the current quarter, we have raised our FY07 earnings estimates from S$274.2m to S$314.6m. In addition, we have built in a slightly more optimistic estimate for trading activities in 2008 for both securities and derivatives, resulting in a mild increase in FY08 earnings estimate from S$235.7m to S$238.7m.With the recent re-rating for blue chips, we have upped our valuation parameter from 23x to 25x FY07/08 blended earnings. Fair value estimate for the stock has also been raised marginally from S$5.70 to S$6.20. We maintain our HOLD rating on SGX as its net yield remains attractive around 3%.



 

Record quarterly earnings. Singapore Exchange (SGX) delivered yet another record quarter with net earnings of S$89.1m in 3Q FY07, up 78% YoY. This brings 9-mth earnings to S$200.5m excluding S$45m write back of allowance for impairment on SGX Centre, or S$245.5m including. Not surprisingly, the buoyant equity market in the Jan-Mar period benefited both SGX's securities and derivatives revenues. While operating revenue rose 44% YoY in 3Q, operating expenses increased only 14% YoY, resulting in a 69% YoY gain in operating profit of S$101.0m. For the Securities Market, which accounted for 56% of revenue in 3Q, average daily traded value rose 62% YoY to S$1.9b. A total of 9 new IPOs came into the market during this period. For the Derivatives Market, trading volume rose 5% to 9.8m contracts in 3Q, while structured warrants saw a 64% rise in trading value to S$5.2b. Management has declared an interim dividend of S$0.02 per share on a tax-exempt one-tier basis and is payable 10 May 2007.

44% y-o-y to S$157.3m and net profit grew 78% y-o-y to S$89.1m. SGX has continued to position itself as Asia?s financial

gateway by strengthening ties with other exchanges, paving the path for collaborations. Moving forward, we expect the

derivatives market to remain strong and the average daily trading value in the equity market to remain sustainable, given

that around S$2.0bn/day was traded at the start of April 07. An interim dividend of 2.0 cents per share was declared. Given

the strong average daily trading value of S$1.9bn experienced in 3QFY07 and around S$2.0bn/day traded in April 07, we

have increased our net profit by 51%, 24% and 22% in FY07, FY08 and FY09 respectively. As the global peers are trading at

an average forward PE of 24x, we have a target price of S$6.85 based on 24x FY08PE. Maintain Hold."