Thursday 18 April 2013

Singapore Exchange

OCBC on 17 Apr 2013

Singapore Exchange (SGX) generated above market expectation 3QFY13 net earnings of S$97.7m, up 25.6% YoY. The strong performance came from several units, especially its core Securities and Derivatives businesses. A 3Q dividend of 4 cents has been declared and is payable on 2 May 2013. The final quarter is likely to see some slowdown, largely due to prevailing macro economic uncertainties, and we expect volatility to come back again as sentiment is likely to turn more cautious especially after the good gains for the key equity indices since the start of the year. We have raised our fair value estimate slightly from S$6.80 to S$7.16 based on the same 23x blended earnings. With an estimated dividend yield of 3.5%, total return is -3.5% and we are buyers only at S$6.80 or lower. Maintain HOLD.

Delivered above expectations 3Q earnings 
Singapore Exchange (SGX) posted 3QFY13 net earnings of S$97.7m, up 25.6% YoY, and above consensus estimate of S$94.7m (based on Bloomberg poll). Buoyed by the strong pick up in trading activities in the first three months of 2013, this helped to lift its Securities business. The Securities Daily Average Traded Value (SDAV) was up a strong 17% YoY and 41% QoQ to S$1.7 billion. In addition, the Derivatives Daily Average Traded Volume (DDAV) also posted a record 479,235 contracts, up 52% YoY and 34% QoQ. Besides the stellar performances from both its core businesses, SGX also benefited from higher issuer services. Total equity funds raised jumped from S$484m a year ago to S$2.4b this quarter. A 3Q dividend of 4 cents has been declared and is payable on 2 May 2013. 

Heading into a quieter final quarter?
After the stellar performance in 3Q, the final quarter is likely to see some slowdown, largely due to prevailing macro economic uncertainties as seen from the recent weaker-than-expected growth of the Chinese economy. We expect volatility to come back again as sentiment is likely to turn more cautious, especially after the good gains for key equity indices since the start of the year. As such, we are projecting a QoQ decline in 4Q. 

Expenses to rise in FY14
Management has guided for total FY13 expenses to be in the region of S$295-305m, and we are going for the higher end of this range. In terms of capital expenditure, it is guiding for S$30-35m. We are expecting new products and legal and regulatory requirements to continue to cause expenses to stay high. In addition, the partial re-location of its business will also entail additional technology and related expenses in FY14. Overall, we have upped our FY13 earnings estimates to S$337.7m (from S$317.0m) due to better 3Q and upping our estimates for 4Q. For FY14, we have only made very slight adjustments to net earnings of S$341.9m. We have raised our fair value estimate slightly from S$6.80 to S$7.16, based on the same 23x blended earnings. With an estimated dividend yield of 3.5%, total return is -3.5% and we are buyers only at S$6.80 or lower. Maintain HOLD.

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