● SGX reported 4Q15 NPAT of S$96 mn, up 24% YoY, slightly
behind our forecast but in line with consensus. As such, we have
largely left our earnings unchanged.
● Key highlights:
(1) Securities daily average traded value
decreased by 4% YoY to S$1.1 bn.
(2) Derivatives volumes in
4Q15 increased 111% YoY, driven by strong China A50 contract
(up 79% compared to 3Q15 32 million contracts, driven by strong
(3) Link with Taiwan will possibly start in 1Q16.
● Turnover has remained stable with the average daily turnover
(ADT) at S$1.2 bn, in line with our forecast of S$1.3 bn for 1Q16E.
Key upside driver is higher (China A50) derivative volumes,
should recent volumes be sustained.
● We left our target price unchanged at S$10.00; noting better outlook
(both derivatives and equities) in our view and retain our
, with our target price implying 25x 12-month
While we continue to view SGX’s solid longer-term growth prospects
as a regional hub as strong (led by regional derivatives trading where
it is gaining good momentum), we highlight that the nearer-term
prospects of the stock are driven by current securities market volumes.
Equity volumes remain stable
We highlight that recent market volumes remained stable—with
1Q16E ADT over the past few weeks remaining S$1.3 bn—which is in
line with our forecasts.
SGX has introduced a new fee structure to encourage market makers
and liquidity providers (now representing 16% of total trade value)
which we believe should help volumes improve over time.
On 19 January 2015, SGX reduced the standard board lot size from
1,000 to 100, which is beneficial for the retail market participation.
Derivatives key to growth (with upside risk)
We continue to see derivatives as a key medium-term growth driver
for SGX which recorded strong growth in 4Q15: volumes up 111%
YoY to 53.2 mn contracts, with China A50 up 79% YoY, now making
up 60% of the total derivatives, up from under 30% at the beginning of
2014. Derivatives revenues increased to 38% of total SGX revenues
in FY15 (including EMC), from 26% in FY12 and 21% in FY11.
The key driver of SGX’s share price remains shorter-term trends in
equity and derivatives turnover
. SGX is currently trading on 21x 12-
month forward P/E, in-line with its eight-year average P/E multiple of
21x (range of 16-25x). On a relative basis (to the Singapore Straits
Times Index), SGX is trading slightly above its long-term average
(around 55% premium). (Read Report)
Read Related Reports
Source : Credit Suisse Asia Pacific Equity Research
Labels: Finance Sector, SGX