EXCLUDING the one-off impairment loss on AFS investment in Bombay Stock Exchange (S$15 million), underlying net profit was S$103 million in Q4 2013 and S$351 million for FY2013.
Securities revenues were stable q-o-q driven by robust securities daily average values (SDAV) of S$1.6 billion in Q4 2013 versus S$1.7 billion in Q3 2013.
Market velocity fell to 55 per cent (from 59 per cent in Q3 2013) as the high volumes generated from active trading in penny stocks in Q3 2013 was not sustainable - daily average volumes fell from five billion in Q3 2013 to 2.7 billion in Q4 2013. Trading volume for derivatives contracts continued its upward momentum while open interest volumes remained strong. Other revenues were lifted by depository and issuer services. Funds raised in the capital markets were flat q-o-q but higher y-o-y.
Expenses rose in tandem with revenue, and were mainly due to higher staff costs. Dividend per share was 28 Singapore cents for FY2013 (one cent higher than FY2012's 27 cents). FY2013's payout ratio of 89 per cent is above its dividend payout policy of 80 per cent.
Sustainable SDAV and derivative activities are crucial to momentum. Our profit forecasts are under review. Upside risks to our earnings forecast would be continued revival in SDAV and strong momentum in derivatives. Based on our estimates, every 10 per cent increase in derivatives revenues could lift earnings by 4 per cent.
Higher capital expenditure (capex) is expected. Capex is expected to be S$35 million to $40 million in FY2014, driven by technology-related capex.
Maintain "hold", with S$7.15 target price based on dividend discount model, implying 20 times FY2014 EPS. Downside for the stock should be limited, supported by dividend yields of 4 per cent. We have imputed 90 per cent dividend payout in our forecasts.
HOLD
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