SGX Q2-0809 Results - OCBC

Singapore Exchange Ltd

Cutting fair value to S$4.50

SINGAPORE Company Update

Carmen Lee
(65) 6531 9802
e-mail: carmen@ocbc-research.com

16 January 2009

Maintain
HOLD

Previous Rating: HOLD
S$4.99

Fair Value: S$4.50

General Data
Issued Capital (m) 1,069
Mkt Cap (S$m/US$m) 5,334/3,569
Major Shareholder SEL Hldgs (24%)
Free Float (%) 51
NAV per share (S$) 0.62
Daily Vol 3-mth (‘000) 8,383
52Wk High (S$) 10.960
52Wk Low (S$) 4.150

Year to Turnover EBIT PAT EPS PER Net DPS Net Div Yield
30 Jun (S$m) (S$m) (S$m) (cents) (x) (cents) (%)
FY 07* 576.2 365.2 421.8 40.8 12.2 36.0 7.2
FY 08* 768.6 529.0 478.3 44.7 11.2 38.0 7.6
FY 09F 556.0 341.7 280.4 26.2 19.0 22.0 4.4
FY 10F 600.1 384.3 315.5 29.5 16.9 25.0 5.0

* Note: Included one-off from SGX Centre in FY07 and distribution from SGX-DT Compensation Fund in FY08

Severe market decline dragged down 2Q performance.
Singapore Exchange Ltd (SGX) posted a 52% YoY or 12% QoQ decline in 2QFY09 earnings to S$74.7m, dragged down by adverse market conditions, but in line with market expectation of S$73m. For 1H, earnings fell 44% to S$159.2m, or down 37% if S$34m distribution in previous period was excluded. All segments posted QoQ decline, resulting in a 7% QoQ or 28% YoY decline in operating revenue to S$146.7m in 2QFY09. It came as no surprise that Securities Market revenue fell 7% QoQ or 43% YoY to S$69.6m, while Derivatives was down 7% QoQ but up 11% YoY to S$42.8m. Even Stable Revenue fell 9% QoQ and 20% YoY to S$34.3m. Refer to
Exhibit 1 for more details. SGX has declared a 2Q dividend of 3.5 S cents, payable on 18 Feb 2009.

Uncertainty remains.
Volatility in the market is likely to stay for a while, and this cautious environment could curtail trading activities, affecting Securities Market revenue. Management emphasized that it will look at cost containment. The decline in the global equity market has also taken a toll on capital raising exercises, IPOs and derivatives trading activity, which were clearly seen in SGX's 2Q results. The launch of the Extended Settlement contacts (single stock contracts) has been pushed back to 3Q FY09.

Retain HOLD,
cutting fair value to S$4.50. With cautious market sentiment, corporates are finding it hard to raise funds. This has led to the sharp decline in capital raising activities, which now look likely to persist into 4QFY09, and could impact SGX's corporate and listing fees. Management has indicated that it will continue to develop its Derivatives business, but we expect the slump in the equity market to be the present over-riding concern for the stock. Internally, we expect management to keep a close watch on costs in line with other corporates dealing with the present market uncertainty. In view of the unresolved turmoil in the market, we are cutting our 2HFY09 earnings, resulting in a decline in FY09 earnings from S$327.9m to S$280.4m. We have also cut our FY10 earnings from S$362.3m to S$315.5m. As a result of this, but still maintaining our valuation parameter of 16x, our fair value estimate is now S$4.50 (previous: S$5.80).

We retain our HOLD rating.