Singapore Exchange

OCBC on 18 Apr 2012

Summary: Singapore Exchange (SGX) posted a set of 3QFY12 results which were in line with market expectations. Net earnings came in at S$77.8m, up 16% YoY and 18.9% QoQ. Securities Revenue accounted for 40% of total revenue, followed by Derivatives at 26%. It declared an unchanged base dividend of 4 cents per share for this quarter. While the IPO market was quiet in 3Q12, it has picked up in the early part of 4Q12, and indications are that there are more in the pipeline. As its results were in line with our expectations, we are leaving our full year estimates intact. The stock has appreciated by about 10% since our report in Jan, and at current price, we see limited upside to our unchanged fair value estimate of S$7.00. As such, we are downgrading our rating to HOLD.

3QFY12 results were in line with expectations
Singapore Exchange (SGX) posted a set of 3QFY12 results which were in line with market expectations, buoyed by the rally in global equities during the quarter. Net earnings came in at S$77.8m, up 16% YoY and 18.9% QoQ, and just a slight tad below consensus estimate of S$78m. Securities Revenue remained the core contributor or almost 40% of revenue, followed by Derivatives at 26%. For Derivatives, daily average traded volume rose 15% QoQ to 315,919 contacts. The strong pick up in Securities trading activities led to a 22% QoQ gain in Securities Revenue. For 9MFY12, net earnings grew 7% to S$215.4m. It declared an unchanged base dividend of 4 cents per share for this quarter, with book closure on 3 May 2012 and payable on 16 May 2012.

IPO activities picking up
While the IPO market was very quiet in the last quarter, with only one IPO and one reverse takeover, sentiments have definitely improved in the current quarter with the recent listing and favourable take-up rates for Bumitama Agri and Civmec Ltd. Early indications point to a healthy pipeline of potential IPOs which could come into the market in the coming months, including several prominent names. Other initiatives such as trying to attract more high-frequency trading (HFT) and Asian connectivity are positive, but we do not expect any near term impact.

Lack of medium term price drivers; downgrade to HOLD
Since its results were in line with our expectations and taking into account the slower start to 4QFY12, we are leaving our full year estimates intact. This means full-year earnings of S$300.5m or 4Q earnings of S$70m. As we head into a quieter quarter, there is also a resultant lack of price drivers for the medium term. In addition, the stock has already appreciated by about 10% since our report in Jan, and at current price, we see limited upside to our unchanged fair value estimate of S$7.00. As such, we are downgrading our rating to HOLD.