SGX: S$5.40 SELL (TP: S$3.95) - Nov futures turnover volume plunged

Dec stockmarket turnover value remains soft. Average daily stockmarket turnover value was S$0.96b for the first 11 trading days of Dec 08. Though this is close to Nov 08’s S$1.04b, it represents a sharp 31% decline from Oct 08’s S$1.40b. The average value per share traded has also fallen from Oct 08’s S$1.03 to Dec 08’s S$0.86 – suggesting a shift towards trading of smaller cap stocks. However, we note that Dec is seasonally a month of weaker trading volumes due to the holiday season. Hence, despite the weakness in Dec, we are maintaining our FY09 and FY10 ADT assumptions of S$1.19b and S$1.24b respectively.

Futures turnover strength has abated. After recording very strong futures trading volume of 6.47m and 6.84m in Sep and Oct 08 respectively, futures turnover fell to 4.44m in Nov 08, with a 1.69m MoM decline in Nikkei futures trading volume. We do not read this positively as derivatives clearing fees account for 29% of 1QFY09 overall revenue. As the weakness only occurred for one month, we maintain our FY09 and FY10 futures turnover volume of 72m and 75m respectively, and will review the numbers, if necessary, at a later date.

Is an assumption of FY10 ADT of S$2.1b reasonable? We do not think so, given that Dec 08’s was S$0.96b. SGX traded at mid-teens P/E in 2005, when FY05 ADT fell 14.5% YoY. We believe a fair P/E rating is 13x, factoring in the more severe decline this time round – we are assuming FY09 ADT to fall 47%. Our target price of S$3.95 is pegged to this 13x P/E rating. Based on the current price of S$5.40 (and applying a 13x P/E rating), the market is assuming a FY10 ADT of S$2.1b, which we feel is unachievable. Maintain SELL on SGX.

source: DMG

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