■ We reduce our earnings by 9% given continued weak market activity, reducing our FY17E ADT to S$1. November 2015 volumes continue to be weak, with ADT of S$0.97 bn.
Key trends in November 2015 were:
(1) Equity markets (30% of revenues). November's average daily turnover (ADT) was down 13% YoY at S$0.97 bn, down 8% MoM. December so far is weaker still, tracking below S$1 bn.
(2) Derivatives markets (35%). Derivatives volumes were up 13% YoY in November 2015, and up 20% MoM. The momentum picked up due to stronger China A50 volumes (+42% MoM), with decline in December.
(3) Depository services (15%). These fees are more based on equity volumes than value, with volumes down 27% YoY in November 2015.
(4) Listings (10%): There was no equity listing in the month, with bond listings still the main source of new fund raisings.
■ Investment case
The key investment case for SGX is the longer-term growth through both equities growth and success in its strategy to become an Asian regional gateway, with derivatives being the medium-term driver, in our view. Nearer term, its fortunes are more linked to current equity market volumes.
Market trading volumes, IPOs and subsequent capital raisings and the success of new product launches (i.e., forex products).
■ We reduce our target price to S$8.00 (from $10.00) and as such downgrade our rating to NEUTRAL (from Outperform). The current share price implies 21x FY17E earnings, but note strong yield support (~4%). (Read Report)
Source : CIMB Research