SGX - Target Price Raised on Strong Trading Volumes

kimeng

Publish date: Tue, 22 May 2012, 09:58 AM

Warrants Highlight

SGX - Target Price Raised on Strong Trading Volumes

Macquarie Equities Research (MER) upgraded its FY12–13E earnings for SGX by 6–8% after better-than expected trading volumes and quarterly results. MER raised the target price to
S$7.56 from S$7.21 and maintain an Outperform rating

Code	Name	Type	Expiry	Exercise Price
P9HW	SGX MB eCW120904	Call	04-Sep-12	6.50

Securities turnover ahead of YTD expectations but volatility remains. YTD average daily turnover of S$1.4bn is 16% higher than MER’s previous FY12 expectations. The latest trading statistics for April and better-than-expected 3Q12 results reaffirm MER’s positive view on SGX because: 1) Turnover velocity improved by 10 percentage points (ppt) QoQ to 57%; 2) Uncapped trades, a proxy for higher-margin trades from retail participation, improved
5ppt YTD; and 3) Management is able to maintain strong cost discipline amid tepid volumes, as proven in the past two quarterly results.

Derivatives on track. According to MER, SGX has been regularly launching derivative products on various indices in the past few years, such as MSCI Indonesia, FTSE China A50, CNX Nifty and the like, with the aim of diversifying investment options – with varying degrees of success. MER expects this set of initiatives to get a fillip when market sentiment improves. On a longer-term view, MER also expects SGX to be the key beneficiary among its peers from the OTC market reform to mandate OTC clearing through a central clearinghouse.

Strategic alliance vs M&A. MER prefers SGX to engage in strategic alliances in order to achieve its pan-regional ambitions rather than overpaying for cross border M&A. Although MER is not convinced that such partnerships will lead to higher liquidity or earnings, the few signed so far, e.g. NYSE Technology and ASEAN Link, should at least result in a broader product breadth.

MER reiterates Outperform rating on SGX given the stock’s defensiveness and balance sheet strength, which it thinks make SGX attractive despite the likelihood for weak market sentiment in the short term. SGX has outperformed its peers YTD but still trades at a 5% discount to Asian peers at 25x FY12e PER and offers a 4% dividend yield.

Key risks:
1) Macro risks – Volume deceleration could cause a long-term derating and;
2) M&A risks – Management may be pressured to grow inorganically if volume growth fails to make any significant headway.

*Excerpt from MER report dated 18 May

Singapore Market Wrap

Afternoon Rebound

The STI traded in the red most of yesterday, but took the cue from European bourses mid-afternoon and rebounded to close up 0.4% day-on-day (dod) at 2,790.2. Similar gains were noted in the U.S equity markets after China signalled that it would support the economy if necessary. Over in Europe, both Germany and France agreed to work together to keep Greece in the European Union.

Call CN8400MBeCW120628 (QC8W) exercise level 8,400.*
Put CN8200MBePW120628 (QD2W) exercise level 8,200.*

Call STI 2950MBeCW120831 (QE8W) exercise level 2,950.*
Put STI 2850MBePW120831 (QE9W) exercise level 2,850.*
Call STI 3000MBeCW120629 (P8BW) exercise level 3,000.*
Put STI 2900MBePW120629 (P8CW) exercise level 2,900.*

S-chips rebounding
With the Chinese government giving reassurance, S-chips like Yanlord (+2.9% dod, $1.06), Yangzijiang (+2.2% dod, $0.950) and Cosco (+1.7% dod, $0.900) rebounded yesterday.

Call Yanlord MBeCW120801 (O8XW) exercise price $1.15.*

Call YangzijiMBeCW130102 (O9LW) exercise price $1.20.*

Call CoscoCoMBeCW121001 (P9IW) exercise price $1.10.*

Bumitama and Indofood strengthened
In the Crude Palm Oil (CPO) space, Bumitama Agri (+2.9% dod, $0.895) and Indofood Agri (+1.6% dod, $1.29) stood out among their peers.

Call Bumitama MBeCW120702 (P9EW) exercise price $0.85.*
Call Bumitama MBeCW120903 (P9FW) exercise price $1.00.*

Call IndoAgriMBeCW121101 (QD6W) exercise price $1.50.*

Overnight Market Wrap

S&P500 Strongest Rally in 2 Months

US Stocks rebounded sharply yesterday after a losing streak. The S&P500 index rose 1.6% day-on-day (dod), with Basic Materials and Technology the top gaining sectors. Investors favoured Apple (+5.8% dod), while avoided Facebook (-11.0% dod).

The Euro gained 0.3% to 1.2818. The Euro gained strength as both France and Germany pledged their support to keep Greece in the eurozone. However, the International Institute of Finance (IIF) said that the Spanish banking industry may require an external funding of EUR 60bn to stay afloat, despite its government strong denial of any bailout needs.

Overnight Markets

Indices	Last	Change
STI	2790.16	0.4%
HSI	18922.32	-0.2%
DJIA	12504.48	1.1%
S&P 500	1315.99	1.6%
Nasdaq	2847.21	2.5%

Corporate News

Corporate Announcements

Results Announcement
Tue 29 May: Biosensors 4Q12

SGX (S68)

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