SGX - boosted by market rebound; expect stock to move sideways

SGX reported FY6/4Q09 net profit of S$91.1 mn (65% QoQ, 1% YoY) driven by a bounce in securities market activity. Performance of other drivers (derivatives and stable fee) was lacklustre.

After bottoming at S$0.8 bn in February, average daily equity turnover has recovered and stabilised at S$1.6 bn in June-July at 75-80% turnover velocity. Derivatives turnover is down 6% YoY as market volatility has reduced considerably.

4Q09 saw just one IPO, the worst in recent times. We do not expect new listings or new product launches to be significant drivers near term. After last quarter’s market rebound, upside to equity turnover near term seems limited as well.

We increase our FY10-FY11 estimates by 13-24%, mainly driven by higher turnover assumption (S$1.7-1.8 bn from S$1.1-1.2 bn).

We assume coverage with a NEUTRAL rating and target price of S$8.50 (from S$5.80) at 24x 12M forward P/E (five-year average 40% premium to Singapore market). With stock price and equity turnover more than doubling from March lows, drivers have peaked near term.

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