SGX yield remains decent at 4%

Weak Securities business
Singapore Exchange (SGX) posted 4QFY14 earnings of S$77.4m, down 12% YoY, giving full year earnings of S$320.4m. This was clearly seen in the decline in the Securities daily average traded value (SDAV) in FY14, which fell 23% YoY to S$1.14b. In terms of total traded value, this declined 22% to S$368.8b. While 1Q14 was strong, the rest of the quarters failed to match the volume generated in 1Q14. This led to an 18% drop in Securities revenue for the year to S$226.9m, which now accounted for only 33% of group revenue. Derivatives somewhat mitigated the decline as revenue rose modestly by 3% to S$208.7m. Management declared a final dividend of 16 cents, same as last year, giving full year total dividend of 28 cents. The ex-date is 1 Oct 2014 and dividend will be paid out on 13 Oct 2014.

1HFY15 outlook is still muted
While the mergers and acquisition theme was strong for the past few quarters, the momentum appears to have slowed down as general market and stock valuations move higher. In addition, the IPO market was relatively quiet in 2014. While there were eight IPOs in the first half of 2014, this included only two companies on the Mainboard (OUE Commercial Trust and Pacc Offshore Services Holdings), with the balance listed on Catalist. In terms of expenses, management has guided for tech-related expenses of between S$50-55m, and total operating expenses of S$330-340m for FY15.

Raising FV marginally to S$7.26
As we are expecting the 1H of FY2015 to be relatively quiet, we have cut our FY15 earnings to reflect the still slow trading environment, dropping our full year earnings from S$359m to S$347m, below consensus. However, as we are rolling into FY15-16 estimates and based on the current peers’ PER average of 21x, we are raising our fair value estimate marginally from $7.22 to $7.26. Dividend yield remains decent at 4.0%. We are maintaining our HOLD rating on SGX.