Singapore Exchange

DMG & Partners Securities on 9 April 2012

FY2012 securities average daily turnover (ADT) is seen to be unexciting.

Singapore Exchange (SGX) recorded Q3 FY2012 (year-end: June) securities market ADT of $1.4 billion, which is an improvement over Q2 FY2012's $1.1 billion. However, this is weaker than Q3 FY2011's $1.71 billion.

We are maintaining our FY2012 ADT forecast of $1.36 billion, which assumes Q4 FY2012's $1.37 billion.

On the expectations of a more optimistic FY2013 ADT of $1.6 billion, and applying an 18 times price-earnings (PE) multiple (lower than the five-year historical average of 24 times but higher than the 2009 crisis low of 11 times), we derive our TP of $5.40. Maintain 'sell' on SGX.

We forecast a 9 per cent quarter-on-quarter (q-o-q) earnings improvement for Q3 FY2012.

SGX will release its Q3 FY2012 results on April 17. We estimate Q3 FY2012 net profit of $71 million, up 9 per cent q-o-q.

We noted sequentially stronger securities ADT, with a Feb 12 peak ADT of $1.73 billion, and both January and March recording only about $1.2 billion.

This is an improvement over Q2 FY2012's $1.10 billion securities ADT. The derivatives market turnover was also stronger sequentially - with Q3 FY2012's 18.1 million contracts being 12 per cent higher q-o-q.

SGX's PE is rich relative to its growth prospects.

Based on our forecasts, SGX currently trades at an FY2013 PE of 22.6 times. This is close to the Hong Kong exchange's (HKEx) 23.6 times and Bursa Malaysia's 22.1 times.

Given the better long-term earnings growth prospects for HKEx arising from its China hinterland and deeper and more liquid equity market, we would prefer HKEx to SGX.

We see a pair trade of going long HKEx and shorting SGX offering good returns.
SELL