Singapore Exchange

Kim Eng on 8 Apr 2013

3QFY13 results preview alert: Expect a very strong quarter. We are highlighting that the upcoming set of 3QFY13 results will be of major significance. Our street-high net profit forecast of SGD94.5m for the
quarter represents a strong 22% yoy and 24% qoq growth. More importantly, this will be SGX’s most profitable quarter since the Great Financial Crisis. The company will announce on 16th April after market.

Significant uptick in trading volume in 2013. Since the turn of the New Year, security trading activities have picked up significantly, with the quarter Jan-March 2013 registering an average SDAV of SGD1.7b. This momentum bodes well for the rest of the year, and will represent higher revenue in its more traditional bread-and-butter business.

Derivatives revenue growth will surprise market on the upside. We reiterate our earlier belief that this segment will see structural growth, decoupled from the more volatile volumes in its securities trading business. Growth momentum here has surpassed expectations, with 3QFY13 DAV (derivatives average volume) up more than 50% yoy. Overnight open interest, which grew 31% qoq in 2QFY13, will show another 29% exponential quarterly leap.

Collaborations likely to be a key discussion point. Following the failed ASX bid, partnerships will continue to be a key strategic pillar for SGX going forward. We expect management to highlight the progress here, having recently announced collaborations with Korea Exchange (KRX) and Philippines Stock Exchange (PSE) for the derivatives market and the ongoing efforts to integrate an ASEAN exchange where it is currently linked to the Stock Exchange of Thailand and Bursa Malaysia.

Reiterate BUY. Given its decreasing reliance on securities revenue (29% of Group revenue from derivatives for FY13 compared to 26% in FY12), we believe SGX should be re-rated. We increase our FY13F SDAV assumptions from SGD1.4b to SGD1.45b but keep FY14/FY15 estimates largely unchanged. Our TP of SGD9.00 remains pegged to 29x FY13F, 1-standard deviation above historical mean.