SGX - RHB Invest 2016-04-21: Sequentially Stronger Earnings

SINGAPORE EXCHANGE LIMITED SGX S68.SI

SGX - Sequentially Stronger Earnings

We upgrade our TP for SGX to SGD9.04 (from SGD8.13, 12% upside) on the back of the momentum in volume growth from its cash and derivatives businesses.
Its 3QFY16 net profit of SGD89m was in line with expectations, with growth driven by both its cash and derivatives businesses.

Market expectations of fewer Federal Fund rate hikes for this year have impacted the equity market positively, and SGX’s initiatives such as secondary listings in Singapore and introducing more derivative instruments are positive for its long-term growth.

Singapore Exchange’s (SGX) derivatives volume for the quarter rose 24% YoY to 48.68m contracts.
The China A50 Index futures accounted for a significant 44% of volume, and the Nikkei 225 Index futures had second largest share with 16%.
We are assuming a conservative 754,000 overall derivatives average daily volume for the current financial year. However, its derivatives revenue expanded by a much milder 3% YoY, largely due to competition in the iron ore segment – which led to a fall in fees per contract.
SGX remains committed to the iron ore derivatives market as it sees long-term growth potential.

During the quarter, securities average daily value was SGD1.22bn (up 5% YoY).
Turnover velocity rose to 46% (from 39% in the same period last year). However, its average clearing fee declined to 2.90bps.
SGX sees the secondary listings as a potential area of growth, in addition to other growth initiatives.

We peg our TP to a target 26x FY17F P/E (1SD above the 1.5-year mean P/E of 23.4x). This bumps up our TP to SGD9.04.
Our DCF methodology also derives a higher SGD9.17 fair value.
SGX’s dividend yield of 3.8% is attractive, compared to the sovereign 10-year bond yield of 1.9%.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2016-04-21

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.04 Up 8.13