Singapore Exchange securities daily average value forecast at $1.9bln for FY11

After consistently disappointing Phillip Securities' estimates, Phillip Securities lowered their SDAV estimates for 3QFY11 and 4QFY11 to $2 billion.

According to Phillip Securities Research, SGX's trading volume in ADRs is also disappointing. Cumulative trading value of securities on GlobalQuote was only $1.3 billion since 22 October 2010. We had higher expectations and were convinced ADRs will do well in Asia hence the upwards earnings revision. But because trading performance was not as expected, we have to revise earnings downwards to reflect the lower trading value.

On the other hand, most of the business segments showed growth on q-q and y-y basis. Securities revenue grew 14% q-q; 20% y-y to $81 million. Trading velocity increased to 63% from 60% in the previous quarter. Daily average trading value of ETFs doubled to S$45 million from S$20 million a year ago. As a sign that more institutional investors are in the market, 46% of the total contracts traded were valued above S$15 million. This is 4% higher than previous quarter.

The increase in trading of contract values with high values meant lower securities clearing fees but this is offset by higher depository revenue which grew 20% or S$4 million to S$24 million in 2Q11.

Derivatives revenue increase by 8% y-y; but decline by 0.6% q-q. Futures & Options daily average volume (DAV) was up 12% y-y; 2.7% q-q to 248,325 contracts. Most notably, there had been significant growth in the number of FTSE Xinhua A50 (DAV 7.9 million; +833% q-q) and Nikkei options (DAV 7.3 million; + 533%) contracts traded. Gold futures, whose volume had started off very with DAV of 8.5 million contracts in 3Q10 dwindled to only 1.9 million contracts in 2Q11. But to boost commodities trading further, SGX will, on 15th Feb introduced metal contracts trading Aluminium, Copper, Zinc and Nickel. These metals futures contract will be based on settlement prices from LME.

Hutchison Port, a spin off from Hutchison Whampoa, plans to raise US$6 billion via a listing in Singapore. The listing is expected to complete by March 2011 and the contribution to listing revenue will be $220k, with subsequent annual listing fee of S$100k. We mention the listing of Hutchinson Port because together with the listing of Prudential, Global Logistic Properties etc, it is clear that SGX is actively courting big names and issuers. We are encouraged that the local stock market is able and willing to support the large listings.

Expenses are within Phillip Securities' forecast but they will be increasing operating expense further due to a $20 million ASX-SGX related transaction cost. This is a new expense item introduced in 2Q11 and comprise of miscellaneous expenses such as fees to bankers, lawyers and travelling cost. This item is expected to increase our forecast expense by 7% for 2011. No such expense is expected for 2012.

The issuance of Dim Sum bonds or Yuan denominated bonds are a new financial trend. Despite the increase in their popularity index, DBS with its presence in Hong Kong failed to underwrite any of such bonds. According to HSBC, one of the largest underwriter of Dim Sum bonds, estimated new issues in 2011 to reach 80 billion yuan. The demand for these bonds had outstripped supply and we are excited to have these Dim Sum bonds listed on SGX as this represents a new product offering and allow greater number of investors to trade in these bonds.

SGX has the intention to introduce more US listed securities as well as securities from South Korea and India. The expansion of offering on GlobalQuotes is likely to boost trading activities further. However, we do not want to get ahead of ourselves by including this development in our earnings estimate.