Tough year ahead for SGX

Analyst says the bourse’s weak performance came as no surprise.

OCBC Investment Research noted:

Despite a lacklustre quarter, Singapore Exchange (SGX) delivered 2QFY12 net earnings of S$65.4m, down 11.8% YoY and 25.2% QoQ, but better than Bloomberg consensus of S$61.4m. Revenue of S$148.1m was just slightly below consensus of S$151m. With soft market sentiment, the weak performance came as no surprise.

Both Securities and Derivatives revenues fell, but as this was not matched by same or higher declines in expenses, operating profit fell more than 20%. Management has declared a quarterly dividend of 4 cents, payable on 14 Feb 2012.

Global markets have entered a period of extended slowdown. This does not augur well for equities and management is exploring opportunities in other areas, including encouraging more retail participation and adding new products including ETFs and ADRs.

The IPO market is still slow, partly due to lower valuations, although the pipeline of potential candidates is healthy. On the M&A front, management did not rule out the possibility of looking at strategic partners.

Risks remain in the market of further slowdown in Eurozone, US and even extending to China. Prospects are now dimmer, and equities are unlikely to be favoured in this environment. We have taken this into account and expect another few more quarters of muted performance.

As such, we have cut FY12 earnings by 7.4% from S$324.5m to S$300.5m. For FY13, the cut was 7.7% to S$330m, taking into account lower corporate activities and fewer equity-linked issues.

SGX’s share price has also taken a hit in line with the weakness in global outlook, falling some 30% from its 52-week high of S$8.73.

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