Singapore Exchange: Raising the bar

Tuesday, June 9, 2009

Raising volume assumptions. SGX¨s average daily volume and value rose to 3.2bn and S$2.3bn in May-09 respectively (Apr-09: 1.8bn; S$1.3bn). Even for the past week, volume and value appear sustainable and high at 3.1bn and S$2.2bn respectively. Annualised velocity up to May-09 was 78%. We further raise our volume and value assumptions for FYJun10 to 2.5bn and S$2.4bn (from 1.8bn and S$1.7bn) respectively, amidst the market rally, which we believe is sustainable. Hence, our earnings for FYJun10-11 are raised by 16%.

4Q Jun09 quarter the strongest for this financial year. The upcoming 4QFYJun09 results would be the strongest for SGX in this financial year. YTD-FYJun09 average daily volume and value at 1.4bn and S$1.2bn respectively, has run ahead of our earlier assumptions of 1.2bn and S$1.1bn. We are tweaking our FYJun09 volume and value assumptions to match this, given that it is less than a month away from the financial year-end. Our FYJun09 earnings is revised up by 5%.

Reiterate Buy; clearly a proxy to the market. SGX is currently trading at 17x forward PE and is still the cheapest stock exchange in the region. In view of the bullish market sentiment, we further raise our TP for SGX to S$9.10 based on 20x forward PE and 85% velocity assumption. Our target PE is derived from a correlation with market velocity, similar to our valuation methodology for HKSE. Reiterate Buy.


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