More positive developments include the resilient futures volume (+13% qoq in the quarter) and record traded value and volume of SGX-listed ETFs. Total trading value of ETFs from Jan-May 09 continues to break new highs, rising 62% yoy to $1.95b. Furthermore, the IPO market has begun to rebound in the recent months with a handful of successful deals. Industry players are expecting IPO activities to pick up by 2H09. This will be a positive catalyst for SGX.
We estimate that the market is pricing in an ADT of around $1.5bn at the current price. With the current quarter’s ADT at $1.7b and an expected improvement in trading turnover to $2bn by 2010, our sensitivity analysis shows a price upside potential of up to $8.30 for the stock. Besides, SGX possesses good earnings quality and is able to achieve a superior operating leverage of above 100% even at worst times.
SGX has been sharpening its competitive edge as an Asian gateway through new product launches, cross border collaborations, constant technology renewals and tighter corporate governance. SICOM, a company of SGX has recently inked an agreement with NCDEX (the largest agricultural commodity exchange in India) that will make SICOM the first exchange outside India to trade NCDEX’s products. Other new product launches in the pipeline include the fuel oil futures contract.
In addition to a generous dividend payout out of at least 85% according to past trends and a committed annual base dividend of 14 cents per share, SGX offers a good proxy to the market recovery. The group’s strengthening monopoly status, first mover in new product launches and earnings quality deserves the valuation premium. Maintain BUY.
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