SGX

The Business Time on 11 Jan 2012

Analysts cut SGX estimates after disappointing December
By KENNETH LIM

ANALYSTS are trimming their forecasts for Singapore Exchange on the back of disappointing December trading volumes and macro concerns in the year ahead.

With SGX expected on Monday to report its second-quarter results, analysts are expecting revenue of $150 million to $167 million for the three months ended December 2011 and net profit of $63 million to $75 million, according to a poll by BT.

DMG & Partners yesterday downgraded SGX to sell and cut its price target to $5.40 from $6.20, citing lacklustre December data.

Other analysts were also downbeat. 'The problem is that 2Q's poor results might not be a one-off,' wrote CIMB analysts Kenneth Ng and Daniel Lau in a note.

'Market activity is lethargic. Against a backdrop of culled (investment banking) headcount, hedge fund closures, more can-kicking and intermittent fears of a banking contagion, investors cannot be expected to stampede back in a big way.'

The catalyst for some of the recent pessimism was December's trading volume data, which came in below expectations. Total securities market turnover dropped 40 per cent year on year in December to 15.1 billion shares, while the value of trades done was 41 per cent lower at $16.7 billion.

'Yes, the December quarter is seasonally slow but even then, (average daily value traded) was still 36 per cent lower than 2009/2010 levels, close to 2008 levels,' the CIMB analysts wrote.

CIMB has an 'underperform' rating on the stock with a 12-month price target of $5.86. SGX common stock closed at $6.16 on Tuesday.

Credit Suisse analyst Arjan van Veen, who cut his full-year SGX earnings estimate by 3 to 4 per cent after the December numbers, said SGX still offered a longer-term growth story and an Asian regional gateway.
'However, nearer term, SGX's fortunes are much more linked to current market volumes, which remain very weak,' Mr van Veen said.

He expected the exchange's historical 90 per cent dividend payout ratio to support valuations, but still rated the stock 'underperform' with a price target of $5.85.

Kim Eng analyst James Koh was the contrarian bull, maintaining a 'buy' recommendation with a 12-month target price of $6.78. Mr Koh pointed out that non-trading value-linked income could offer some upside.
Such income provide 'structural growth outside of the volatility of market trading conditions', Mr Koh wrote. 'One bright spot is derivatives volume, which has shown robust growth right up until last month.'

Taking a broader perspective, DMG analyst Leng Seng Choon recommended selling SGX and buying Hong Kong Exchange. Hong Kong's ability to attract international offerings with its huge hinterland and its abundance of Chinese yuan-denominated securities give it the edge over Singapore.

'SGX's efforts to drive liquidity is ongoing - we believe there will be some fruits, but investors are less convinced that it will have a significant impact within the next one to two years,' Mr Leng said.