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SGX's derivatives clearing fees to surpass securities'
Expect a S$74.3m profit in 2Q13.
According to CIMB, woes in the West could still constrict the interest of investors through 2013;trading volumes seems unlikely to balloon. That said, SGX’s revenue should be supported by derivatives trading on the back of rising China optimism. Maintain Neutral, EPS and DDM target price (discount rate 9.5%).
Here's more from SGX:
Derivatives revenue could surpass securities’ this year
We expect the trading environment to be mildly more conducive in 2013, as China recovers. Unfortunately, the effects of austerity and deleveraging in the West are unlikely to be over.
As bickering among US lawmakers continues, there will be stop-starts to equity markets with volumes unlikely to recover sustainably. Europe faces its own recession.
These issues should weigh on corporate earnings, and make for an unlikely backdrop for sustained volume improvements. A reprieve for SGX is derivatives trading.
Asian indices and commodity derivatives will increasingly be in play, as a China recovery decouples Asia from the West, we believe. 2013 could be the year of derivatives clearing fees surpassing securities’.
Positive 2Q
Derivative strength should show in the coming results. We expect a 2Q13 net profit of S$74.3m (flat qoq, +14% yoy), as a surge in derivatives (22.2m contracts, +14.5% qoq) offset a decline in securities volume (ADVT S$1.2bn, -13.6% qoq).
Non-trading-related income (market data, membership, depositary, listing services) should be stable at S$57.3m(1Q13: S$57.3m), so should costs (2Q13E: S$72.2m).
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