Monday, 14 April 2014

Singapore Exchange

OCBC on 11 Apr 2014

Singapore Exchange (SGX) has just announced lower clearing fees, which will take effect from 1 June, to boost trading activity. Clearing fees will come off from 0.04% to 0.0325% of contract value and the cap of S$600 for contracts of S$1.5m and above will be removed. However, this development is likely to be over-shadowed by yesterday’s announcement by China’s Premier Li Keqiang of mutual market access between the stock markets at Shanghai and Hong Kong. SGX is releasing its 3QFY14 results on 23 Apr and we expect a rather flat quarter. We are projecting net earnings growth of 2.5% to S$74.3m for 3QFY14, anticipating a better 4Q to generate our full year earnings projection of S$336.1m. While the latest announcement is positive, we believe that trading activity will still be largely dictated by global market developments, and on this front, the outlook is fairly muted. At current yield of 4%, we are maintaining our HOLD rating and fair value estimate of S$7.22.

STI rebounded from recent low
The benchmark Straits Times Index (STI) has rebounded from recent lows, after slipping into negative territory YTD as market concerns mounted over the outlook for emerging markets. Recent gains have brought the STI back into the black for the year, but trading volume on the local bourse remained dismal. While average daily traded volume was relatively flat in 1QCY14, it was down almost 49% YoY. Of concern is that average daily traded value has also come off, down 37% YoY. 

Aiming to improve trading, but dampened by mutual access between HKEx and Shanghai
SGX has just announced new securities market fee structure which will kick in from 1 June 2014. The key change is a reduction in clearing fees from 0.04% to 0.0325% of contract value. In addition, the cap of S$600 for contracts of S$1.5m and above will be removed. This will help to reduce transaction costs and also to encourage more trading activities. In addition, SGX is also in discussions with 8-10 market makers, including high-frequency traders, in another initiative to boost trading activity. Meanwhile, China’s Premier Li Keqiang yesterday expressed his support for mutual market access between the stock markets at Shanghai and Hong Kong. This is likely to give the Hong Kong Exchange (HKEx) a major boost. 

3QFY14 results on 23 Apr
Singapore Exchange (SGX) is releasing its 3QFY14 report card on 23 Apr 2014. While there were several recent positive announcements including better commodity activities in Mar, we expect overall trading value in the quarter to be almost flat QoQ – in line with our expectations post the 2Q results. We are projecting net earnings growth of 2.5% to S$74.3m for 3QFY14, anticipating a better 4Q to generate our full year earnings projection of S$336.1m. While the latest announcement is positive, we believe that trading activity will still be largely dictated by global market developments, and on this front, the outlook is fairly muted. At current yield of 4%, we are maintaining our HOLD rating and fair value estimate of S$7.22.

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