SGX: S$4.73 SELL (TP: S$3.95) - Sharp decline in Nov stockmarket turnover value

source:DMG

Nov stockmarket turnover value is down sharply. Average daily stockmarket turnover value was S$1.06b for the first 12 trading days of Nov 08 – a sharp 20% plunge from the S$1.40b for Oct 08. Concerns on global economic weakness and lack of investor interest have contributed to this trend. The average value per share traded has also fallen sharply from S$1.24 in Sep 08 to only S$0.78 in the first part of Nov 08 – we attribute this to the recent sharp fall in share prices which lowered market capitalization from end-Sep 08’s S$506b to end-Oct 08’s S$383b. We expect stockmarket turnover value to remain weak over the next few months, and have therefore cut both our FY09 and FY10 ADT assumptions by 11% to S$1.19b and S$1.24b respectively.

Futures turnover remain robust. Oct 08 futures trading volume of 6.84m is 86% higher YoY, driven by the Nikkei 225 Index & the CNX Nifty Index futures trading. We believe this strength can persist and have raised our assumption of FY09 & FY10 futures turnover volume both by 7% to 72m & 75m respectively.

Earnings forecasts reduced. Factoring in the above two developments, we are lowering our FY09 and FY10 net profit forecasts by 7% and 8% to S$315.7m and S$323.9m respectively. We believe more market players will cut their earnings forecasts and therefore expect the current consensus expectations of S$335.3m and S$382.5m (for FY09 and FY10 respectively) to fall closer to our forecasts over the next few weeks.

Target price cut from S$5.20 to S$3.95. Given the recent P/E compression across all sectors, we have reviewed our assumptions for SGX target price. Our new target price of S$3.95 is pegged to 13x FY10 P/E – lower than the 16x P/E which we adopted earlier. This target P/E rating is close to the level recorded in FY05, when ADT fell 14.5% YoY. Our sensitivity analysis shows that market players are assuming an ADT exceeding S$1.62b based on the current share price of SGX – a level which we feel is unachievable over the next few quarters.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned