What is the news?

SGX Ltd announced 3Q13 net profit of S$97.7 million, up 27.9% q-q, and 25.6% y-y. Total revenue increased 17.8% q-q to S$190.6 million, with strong growth in contributions from both Securities and Derivatives revenue. An unchanged interim dividend of 4 cents was declared.

How do we view this?

3Q13’s results were exceptionally strong, with net income being the highest in 5 years. While Securities revenue trails levels previously achieved, the continued growth of Derivatives revenue made up for the weaker securities performance. While market conditions remain volatile, we continue to overweight SGX based on 1. A shift from debt to equity markets, 2. Our Macro Analysts’ positive view of the Singapore equity markets, and 3. SGX’s attractiveness based on infrastructure, offerings and better corporate governance listing requirements. We expect SDAV to remain at elevated levels, as market activities continue to improve, although lower q-q from a high base. We also expect DDAV to similarly continue growing from improving market sentiments, wide variety of attractive product offerings, and solid infrastructure.

Investment Actions?

We revise our forecast to reflect 3Q13’s earnings. Based on an unchanged Price Earnings ratio of 26X, we derive a TP of S$8.00, and maintain our “Accumulate” rating.

Source: PhillipCapital Research - 17 Apr 2013