SGX's 4QFY14 net profit is expected to be down slightly qoq on seasonally higher staff costs. We believe that its bright spot will be securities clearing fees, as securities ADVT picked up marginally in the last two quarters, while its removal of the cap on institutional clearing fees should increase SGX's effective securities clearing rate starting Jun. The disappointment this quarter is likely to show up in derivatives, as growth in traded volumes has come off with lower interest in SGX's two key products: Nikkei 225 and China A50 index futures.

In view of its subdued trading volumes, we maintain our Hold rating and cut our FY14-16 EPS by 3-6% for lower derivatives volumes. Our DDM-based target price falls to S$7.43 accordingly (discount rate 9.5%).