SGX Stock Targets :: Your One Stop Analyst Reports Blog

Record FY07 earnings. Singapore Exchange (SGX) posted record FY07 earnings of S$421.8m, more than doubling that of FY06. Excluding the one-time gains from the disposal of the SGX Centre and the write-back of the impairment allowance on the same building, net profit would have been S$311.3m, still a record high, and fairly in line with market estimates. Improvements came from all fronts. Revenue rose 41% to S$576.2m in FY07. Securities topped with revenue of S$326m, up 56%, or 57% of total revenue, buoyed by the surge in securities trading volumes and values since the start of 2007. Derivatives revenue grew 22% to S$117m. Other positives included more new and bigger listings (46 new IPOs, 70% foreign), Exchange Traded Funds (ETF) and Global Depository Receipts (GDR).

Raised base annual dividend to 12 cents. Management has raised the annual base dividend from 8 cents to 12 cents with effect from FY08. The final dividend for FY07 is a total of 30 cents (2 cents for 4Q + a variable dividend of 28 cents). This means a total payout of 36 cents in FY07 (FY06: 16.2 cents), once again exceeding its base dividend.

Positive newsflow. In the last few months, SGX has seen several positive developments, with two key deals being a 5% stake in the Bombay Stock Exchange (BSE) as well as the Tokyo Stock Exchange's 4.99% stake in SGX. In addition, it has signed several partnerships including two MOUs with the Hanoi Securities Trading Center and Ho Chih Minh City Securities Trading Center. All these have been captured in its share price in the last 1-2 months, which has moved to a recent high of S$10.90, up 91% for the year, making it the best-performing exchange stock in this region. Trading momentum looks good so far this quarter, with average daily volume of 4.5b units in Jul - another all-time high.

Based on the still strong market activities, we have raised FY08 earnings estimates from S$238.7m to S$286.8m, largely on account of optimistic estimates for both securities and derivatives in FY08. As valuations for its peers have also moved up, we are upping our valuation parameter from 25x to 30x (peer range: 25-37) FY08/09 blended earnings. Based on this, we are raising the fair value estimate for the stock from S$6.20 to S$8.80. We maintain our HOLD rating on SGX as its net yield remains good at around 3%.