Besides the turnaround of the securities market revenue, the derivatives market revenue has been strengthening as well. Futures volumes rose 6% yoy in April after 3 consecutive months of decline. Further, the group’s new product launches such as the Extended Settlement contracts and various initiatives to grow the options market will continue to sustain its fast-growing derivates market segment.
Despite turbulent times, the group stays committed to technology upgrade. On-going improvements in trading, clearing, data and web capabilities provide a good infrastructure for SGX to capture opportunities in algorithmic trading, commodities clearing and information services business. It has recently launched an enhanced web site and will be introducing a new derivatives clearing system by year-end.
As ADT has risen to levels that more doubled of our ADT assumption of $1.2bn for FY10, we are increasing our FY10 ADT assumptions to $2bn in line with the market recovery. As such, we have raised our earnings estimates accordingly for FY10 by 21%. Our FY09 earnings estimates remain unchanged as ADT YTD was still within our estimates of $1.2bn.
We have raised our target price to $8.30, based on 21x FY10 PER (from 19x FY09 PER previously) in line with SGX’s recovery stage PER cycle. With renewed market confidence, we reckon SGX will be a fantastic recovery play given its monopoly status and appeal being the Asian gateway to a diversified range of securities and derivatives products. Upgrade to BUY.
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