SGX

Kim Eng Research 22 Dec

Wrapping up CY11. Singapore Exchange (SGX) will announce its 2QFY Jun12 results on 16 January 2012. We revise our securities daily average trading value (SDAV) assumptions going into CY12, which could turn out to be a slow year in terms of trading activities. We believe this period gives us an insight into likely SDAV trend going into the new year.
September-November period may be a good gauge. Given that the global equity market meltdown first started on 1 August, we think the SDAV of $1.3b for the three-month period from September to November (December is seasonally low) gives us a good gauge of SDAV, should 2012 turn out to be a quiet year as many now expect. SDAV for the August-December period was $1.38b.
Our target entry price of $5.85 is near. In our Market Strategy Report: 2012 Recovery Portfolio, we highlighted that our entry price for SGX is $5.85, based on a worst-case SDAV of $1.25b and an implied dividend yield of more than 4%. Even in this scenario, we expect EPS of $0.235 and free cash flow of $0.28 per share, which should form some support for the share price.
Non-SDAV income continues to be strong. We expect income support from non-SDAV sources, where we believe there is structural growth outside of the volatility of market trading conditions. For example, derivatives volume is one bright spot which continued to show strong growth even up till November 2011, and we estimate could make up a record high 27% of group income for FY Jun12.
Maintain Buy. We lower our SDAV assumption for FY Jun12 to $1.4b to reflect likely market conditions for the next year. Our target price of $6.78 remains pegged at 25x FY Jun12F, also implying a yield of 4%. SGX is currently trading at 7.9x FY Jun12F P/BV, below its historical mean of 9x (trough of 5x in 2009). Our profit estimate for 2QFY Jun12 is $75m, which would be flat on a YoY basis but down 15% on a QoQ basis.