SGX - RHB Invest 2015-10-22: Derivatives Surge YoY But Soften Sequentially

SINGAPORE EXCHANGE LIMITED SGX S68.SI

SGX - Derivatives Surge YoY But Soften Sequentially

1QFY16 net profit of SGD99.3m (+28% YoY) was in line, representing 28% of our FY16 forecast.
1QFY16 SADV of SGD1.23bn rose 27% YoY, while derivatives average daily contracts traded surged 82% YoY to 862,000.
Maintain BUY with an unchanged TP of SGD8.13, pegged to 23x FY17 P/E.
While our TP is only 8% higher than current traded price, investors get an additional 4% dividend yield.

1QFY16 (Jun) derivatives average daily contracts amounted to 862,000, up 82% YoY. 53% of the derivatives contracts traded were China A50 Index futures contracts. While the average daily China A50 Index futures contracts volume has fallen 15% QoQ, YoY growth remained robust at 159%.
As we see sequentially softer volumes for China A50 Index futures, we assume lower FY16 and FY17 derivatives average daily contracts at 754,000 and 782,000 respectively.

1QFY16 securities market average daily value (SADV) of SGD1.23bn was 27% higher YoY, but only up a marginal 3% QoQ.
We maintain our assumption of FY16 and FY17 SADV of SGD1.17bn and SGD1.27bn respectively.

Excluding Energy Market Company (EMC), expenses would have risen 18% or SGD15m. Another SGD8m rise was due to higher royalties from derivatives volume growth – which could slow if derivatives trading volume softens.

Singapore Exchange’s (SGX) current policy is for a base quarterly DPS of 5 cents, and an annual payout ratio of not less than 80%.

Our TP is pegged to 23x FY17 P/E (lower than 5-year average of 25x).
While the company traded around 14x P/E during the global financial crisis (2H08), we do not expect such severe P/E compression this time around.
Another attraction is the forecast dividend yield of 4%.

Leng Seng Choon CFA RHB Research | http://www.rhbinvest.com.sg/ 2015-10-22

RHB Research SGX Stock Analyst Report BUY Maintain BUY 8.13 Same 8.13