SGX: Record FY07 performance

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%.