Securities clearing revenue doubled in 4Q FY6/09, as a result of a doubling in trading value. However, securities revenues were 38% lower YoY, due to a 42% decrease in securities trading value. We note the recent surge in securities trading value, which reached an average of S$1.58bn in July but exceeded S$2bn a day in the first two days of August. We believe that there is momentum in securities trading volumes.
Derivatives revenue for 4Q FY6/09 rose 15% QoQ, as the number of contracts rose 19%. Total derivatives contracts traded rose 8.3% YoY for FY6/09, although clearing revenue remained flat. We estimate that derivatives volume will rise by 7% YoY in FY6/10.
Stable revenue fell by 14% YoY but increased its contribution to total revenue to 24% from 21%. Stable revenues were 62% of operating expenses in FY6/09, compared with 68% a year ago. We remain comfortable with the sustainability of this revenue.
Post-results, we have raised our net profit estimate for FY6/10 by 17% on higher securities turnover assumptions. We raised our target price to S$10.28.
12-month price target: S$10.28 based on a DDM methodology. SGX’s FY6/10E PER remains below its historical mean of 25.4x. A comparison with regional exchanges indicates that Singapore Exchange remains at a discount to both Hong Kong Exchange and Bursa Malaysia. SGX is trading at a 17% discount to HKEx and at a larger 23% discount to Bursa Malaysia. We are maintaining our Outperform rating.
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