Singapore Exchange - Buy: Raising Target to S$9.50 on STI Target 2700

Friday, June 19, 2009

Assumes 2010E ADT S$2.1bn, 23x PER — We raise our target price on SGX to S$9.50 (from S$8.00) based on a new 12-month STI target of 2700 (from 2400). We raise forecasts 7-19% on FY10E average daily turnover (ADT) of S$2.1bn. The recent STI rally, up 65% in 14 weeks, saw ADT triple from Feb lows to S$2.1bn/day in May, suggesting a forecast 61%qoq jump in 4Q09E (June 2009) profit. Our revised FY10 forecast of S$444m is 28% above consensus. Key risk is after a nearly 100% price jump SGX is vulnerable to price corrections.

Past market cycles suggest that the STI "normalizes" toward mean P/B levels as expectations of recovery set in, and may even overshoot the mean during periods of ample liquidity.

How far could the STI rally eventually go? It is important to note that we are just 14 weeks into this new recovery cycle. Our study of past STI cycles shows that with one exception (post Sept-01) every STI bull market recovered at least 90% of the prior bear market points lost, which in the current cycle implies returning to 3590 on the STI.

Investment risks: Having already rallied c.100% in 14 weeks from its S$4 trough, SGX is susceptible to near-term price volatility and market corrections. A fundamental medium-term risk would be the entry of a competitor exchange, which could materially affect SGX's equity pricing structure.


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equity research said...
June 23, 2009 at 6:59 PM

Stock market research can also help you identify trends in the market from the very beginning so you can get in on great investments at the start before the price quickly climbs, bypassing a missed opportunity.

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