SINGAPORE EXCHANGE LIMITED
SGX
S68.SI
SGX (SGX SP) - Derivatives Show Resilience
- 2QFY16 net profit of SGD83.7m (-3% YoY) was in line, representing a quarter of our FY16 forecast.
- Maintain BUY with an unchanged SGD8.13 TP (22% upside), pegged to 23x FY17 P/E.
- 2QFY16 securities total value traded was down 9% YoY, while derivatives volume was down a milder 2% YoY.
- We remain optimistic on the derivatives market potential, and SGX’s P/E valuation is more than 2SD below the historical average.
Derivatives volume was resilient.
- Although 2QFY16 (Jun) derivatives average daily volume fell 22% QoQ to 638,000, it was flat YoY.
- The China A50 Index futures remain an important component, accounting for 45% share of volume.
- The volumes traded for Nikkei 225 Index futures collapsed by a third YoY, but there were offsetting gains for the Iron Ore futures.
- We are assuming 754,000 overall derivatives average daily volume for FY16, with the volatility in the Chinese equities market possibly generating increased volumes traded in the futures index – derivatives account for 39% revenue share and are thus important.
Securities market turnover was unexciting.
- Securities total value traded was down 9% YoY, with Dec 2015 being a particularly weak month.
- We are assuming FY16 securities average daily value (SADV) of SGD1.17bn, on the back of slightly stronger volumes (from current levels) as we go forward.
Both P/E and DCF methodologies yield rather similar TP.
- We peg our TP to a target 23x FY17 P/E (lower than the 5-year average of 25x), which results in a TP of SGD8.13. We corroborate this result through DCF (our DCF methodology gives SGD8.38 fair value).
- Singapore Exchange Ltd (SGX) lowered its guidance for FY16 expenses given the current market weakness.
- Its dividend yield of 4% is attractive – SGX maintains its policy of higher annual dividend of 20 cents or 80% of NPAT.
Current SGX’s share price has factored in a bear-case scenario.
- If we assume an unchanged SADV, with a P/E compression due to market conditions (assuming a P/E multiple at -2SD, or 20x), we have a SGD7.00 TP – which is close to the current price.
Leng Seng Choon CFA
RHB Invest
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http://www.rhbinvest.com.sg/
2016-01-21
RHB Invest
SGX Stock
Analyst Report
8.13
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8.13
