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1、,Neutral,7.20,7.27,3.7,7,791,72,regulations,FlashnoteFIGDiversified Financials,abcGlobal ResearchSingapore Exchange(SGX),Equity SingaporeDowngrade to Neutral:Benefits less from a cyclical rebound,Target price(SGD)Share price(SGD)Forecast dividend yield(%)Potential return(%)2.8Note:Potential return e
2、quals the percentage difference betweenthe current share price and the target price,plus the forecastdividend yield,SGX has outperformed its peers y-t-d,but this is likely toturn in a cyclical reboundIt is still too early to judge the economic success of the ASEANtrading link,and hence premature to
3、put that into our valuation,Performance,1M,3M,12M,Absolute(%)Relative(%)Index,5.25.0,15.26.4,8.7-4.2FSSTI,Downgrade to N from OW and maintain SGD7.2 target price.Prefer HKEx in the Asian exchanges space,RICBloomberg,SGXL.SISGX SP,Market cap(USDm)Market cap(SGDm)Free float(%)Note:(V)=volatile(please
4、see disclosure appendix),6,369,Does less well in a cyclical rebound.Supported by a resilient cash turnover,SGX hassignificantly outperformed its Asian exchange peers y-t-d with a nearly 20%share price gain.It is the only major Asian exchange scoring a higher turnover velocity in 2012 y-t-d than in20
5、11.However,its current turnover velocity is also close to the long-term average(58%since2005)and we think there is little room for sustained expansion without a big market move.,25 September 2012York Pun*,CFAAnalystThe Hongkong and Shanghai BankingCorporation Limited+852 2822.hkTodd Dunivant*Head of
6、 Banks Research,Asia PacificThe Hongkong and Shanghai BankingCorporation Limited+852 2996.hkView HSBC Global Research at:http:/*Employed by a non-US affiliate ofHSBC Securities(USA)Inc,and is notregistered/qualified pursuant to FINRA,Yet to see a structural breakthrough.Unlike HKEx which focuses on
7、offshore RMBsuccess for future growth,we are yet to see a credible long-term growth driver for SGX.The ASEAN trading link just launched although visionary is still at the conceptualstage with unclear economic prospects.Past lessons(in the ADR program and commoditybusiness)also suggest new initiative
8、s can be hit-or-miss.Downgrade to Neutral;prefer HKEx.We maintain our forecasts and SGD7.2 target price(derived using three-stage residual income approach).Our earnings forecasts are in line forFY13(year-end June 2013)but are 5%and 10%above consensus in FY14 and FY15respectively we expect consensus
9、to adjust upward in the lead-up to SGXs quarterly resultsannouncement on 18 October but believe that is priced in.Following the shares strong recentrun,we downgrade our rating to Neutral and prefer HKEx(388.HK,OW,CMP HKD119.3,TP HKD150)owing to HKExs greater elasticity in the event of a cyclical reb
10、ound.Catalysts and risks.Return of mega IPOs,special dividend and strong marketperformance could catalyse share price performance.On the other hand,sudden andsubstantial macro deterioration,prolonged market weakness and unexpected mark-downs,Issuer of report:,The Hongkong andShanghai Banking,in fina
11、ncial investments are the potential downside risks.,Corporation LimitedDisclaimer&DisclosuresThis report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,9,9,7,6,7,6,5,5,Singapore Exchange(SGX)Diversified Financia
12、ls25 September 2012Financials&valuation:Singapore ExchangeFinancial statements,Valuation,abcNeutral,Year to,06/2012a,06/2013e,06/2014e,06/2015e,Year to,06/2012a,06/2013e,06/2014e,06/2015e,P&L summary(SGDm),PE,26.6,24.0,20.6,17.6,Total revenueSecurities,648244,669248,751312,844379,PBDividend yield,9.
13、33.7%,9.03.7%,8.34.4%,7.65.1%,Derivatives,168,176,186,204,Growth rates(y-o-y%),Market dataMember services&connect.Depository servicesIssuer servicesOther revenueTotal expensesStaff related expenses,364394621(284)(106),374597651(294)(114),3847100661(310)(121),3949103681(327)(130),Total revenueTotal e
14、xpensesOperating profitNet profitTotal assetsShareholders equity,-1.9%-1.2%-2.5%-1.1%14.0%1.1%,3.2%3.6%3.0%10.6%-0.1%3.9%,12.2%5.4%17.7%16.9%15.8%7.7%,12.4%5.6%17.2%16.9%15.0%9.7%,Technology expensesOther expenses,(104)(73),(105)(75),(109)(79),(113)(84),Key drivers and ratios,Operating profitNon-ope
15、rating profit/lossPre-tax profitTaxNet profit,364(6)355(64)292,37510384(61)323,441449(72)378,517525(84)441,Securities ADT(SGDm)Derivatives ADT(contracts)Turnover velocityCost to income ratioROA,1,319308,31239.3%43.8%18.0%,1,387335,76037.2%44.0%18.7%,1,758368,74643.6%41.3%20.3%,2,137404,60348.5%38.8%
16、20.5%,Balance sheet summary(SGDm),ROE,35.2%,38.0%,42.0%,45.2%,Total assetsCash and cash equivalents,1,729698,1,727611,2,000662,2,300739,Issuer information,Trade and other receivablesOthersTotal liabilitiesCurrent liabilitiesNon-current liabilities,77925289688116,75935886284616,9543841,0681,05216,1,1
17、604011,2781,26216,Share price(SGD)Target price(SGD)Free float(%)Analyst,7.277.2072York Pun,Shares outstanding(m)Market cap(SGDm)Bloomberg(Equity)Reuters(Equity),1,0717,791SGX SPSGXL.SI,Shareholders equity,833,865,932,1,022,Per share data(SGDm),Price relative,EPS(Basic)EPS(Diluted)DPSNAV,0.270.270.27
18、0.78,0.300.300.270.81,0.350.350.320.87,0.410.410.370.96,1211109,1211109,ROAA deconstruction,8,8,Total revenueTotal expensesOperating profit,39.9%-17.5%22.4%,38.7%-17.0%21.7%,40.3%-16.6%23.7%,39.3%-15.2%24.0%,Non-operating profit,-0.4%,0.6%,0.5%,0.4%,2010,2011,2012,2013,Profits before taxTaxNet profi
19、t,21.9%-3.9%18.0%,22.2%-3.6%18.7%,24.1%-3.9%20.3%,24.4%-3.9%20.5%,Singapore ExchangeSource:HSBC,Rel to STRAITS TIMES INDEX,Note:Priced at close of 21 Sept 20122,Singapore Exchange(SGX)Diversified Financials,abc,25 September 2012Running out of steamOutperformed peers y-t-d,but fortune is likely to tu
20、rnSGX has delivered a stronger share price performance y-t-d than its major peers in Asia,on the back of aresilient cash turnover.In 1H12,the average daily turnover(ADT)in Singapore was SGD1.3bn,a similarlevel as the previous half-year,while HKExs cash ADT declined 14%h-o-h during the same period.In
21、fact,SGX is the only major Asian exchange registering an improved turnover velocity in 2012,risingfrom 45%in 2011 to 50%in the first eight months of 2012.We think the resilient cash turnover at SGX is attributable to two key factors:Managements efforts to expand the membership base,building a faster
22、 trading system andenhancing the distribution coverage,are paying off.The strong IPO trend y-t-d.SGX has seen SGD3.6bn in new IPOs in the first eight months of 2012,although down y-t-d,is a respectable performance by its historical standard and compared to otherregional markets.Near term,we think SG
23、Xs cash turnover will remain stable on the back of a strong IPO pipeline(especially if mega IPOs,such as Formula One,return to the market).The most recent round ofquantitative easing(QE3)could be an additional support.However,we think the room for sustainedturnover expansion is limited;even with QE,
24、historical experience suggests its impact tends to diminishover time without further policy/fundamental support.In a nutshell,we maintain our current SGD1.39bncash ADT forecast for FY13 as the prospective cyclical rebound is already in our forecasts.We also thinkSGX is a relatively low-beta play com
25、pared to HKEx.Long-term growth remains the key issueLonger-term prospects of SGX continue to depend on macro and monetary developments,as well as theexchanges business initiatives.The exchange just kicked off the ASEAN trading link with BursaMalaysia on 18 September,and is expected to be joined by t
26、he Stock Exchange of Thailand next month.According to the exchanges announcement,31 brokers across the region have signed up for the link which looks significant compared to only 27 securities trading members in SGX.However,we think theASEAN trading link is still at the conceptual phase,with an uncl
27、ear business model and economicbenefits,and hence we choose to be cautious in assuming its economic success/value accretion to SGX.Meanwhile,the steady macro environment in Singapore does not seem to support a full-fledged risk-onmode.The persistently high inflation remains a concern and could see t
28、he regulator maintain a tightmonetary policy stance.Why not Underweight?We think SGX remains a safe choice compared to its peers,in part because it has passed the peak of theinvestment cycle and capex/technology costs look set to decline in FY13/FY14.Meanwhile,managementhas shown little incentive to
29、 enter into new M&A transactions following the failed merger attempt withASX.Its ASEAN trading link,in our view,also indicates SGX has little intention to pursue a regionaltarget.Last but not the least we note the management is still studying its capital management plan,meaning a special dividend is
30、 still possible.3,Singapore Exchange(SGX)Diversified Financials25 September 2012SGX has outperformed the peers y-t-d140%120%100%80%60%,abc,Jan-12,Feb-12,Mar-12,Apr-12,May-12,Jun-12,Jul-12,Aug-12,Sep-12,HKEx,SGX,ASX,Bursa Malaysia,Osaka Ex.,Source:Bloomberg,HSBCon the back of its resilient cash turno
31、ver performance250%200%150%100%50%0%,HKEx,SGX,ASX,Bursa Malaysia,KRX,Shanghai,Shenzhen,2011,Jan-Aug 2012,Source:WFE,HSBCQE could be a sentiment driver but its effect tends to fade over time(SGDm)3500,3000,15 w eeks preceeding QE,Start of QE,15 w eeks post QE,25002000150010005000,4,Source:Bloomberg,H
32、SBC,QE1,QE2,QE3,Singapore Exchange(SGX)Diversified Financials,abc,25 September 2012Valuation and risksOur valuation for SGX is derived from a residual income approach.This valuation methodology is similar todiscounted cash flow(DCF)but uses the economic benefits(rather than cash flow)as the valuatio
33、n basics.Ourvaluation comprises three stages:stage one is based on our explicit forecasts for FY13-15.Stage two is acontinuous growth stage,in which we assume 6%average annual income growth over the following 25 years.Stage three is the terminal stage that we assume ROE to fall to COE.Overall,we mai
34、ntain our SGD7.2 targetprice but downgrade our rating from Overweight to Neutral.Under our research model,for stocks without avolatility indicator,the Neutral band is 5ppts above and below the hurdle rate for Singapore stocks of 8.5%.Our target implies 2.8%potential return(including prospective divi
35、dend)within the Neutral band;thus wedowngrade our rating.Potential return equals the percentage difference between the current share price and thetarget price,including the forecast dividend yield when indicated.Key downside risks include:Market risks.Ongoing uncertainties over the macro environment
36、 and monetary conditions can lead tolower turnover than we expect,and lower revenue than we currently forecast.Regulation risks.Unfavourable changes to regulations can affect the competitive landscape for SGX,with negative implications for its financial performance as well as prospects.Deal related
37、risks.We have not factored in any M&A given the lack of information available.We believeSGXs management have little intention to enter into another bidding war now,after the failed mergerattempt with ASX a year ago.But this could change and depending on the terms,SGX might overpay for apotential tar
38、get,which could lead to downside risks to our forecasts.Key upside risks include return of mega IPOs,special dividend and strong market performance couldcatalyse share price performance.5,Singapore Exchange(SGX)Diversified Financials25 September 2012HKEx is a preferred player:valuation and risksWe a
39、re using the same residual income valuation approach to value HKEx.Stage one is based on our explicitforecasts for 2013-15.We assume an 11%average annual income growth over the following 25 years,beforewe assume ROE falls to COE in the third stage.We have a HKD150 target price for HKEx.Under our res
40、earchmodel,for stocks without a volatility indicator,the Neutral band is 5ppts above and below the hurdle rate forHong Kong stocks of 8.5%;our target implies a potential return above this band so we reiterate our OW rating.Potential return equals the percentage difference between the current share p
41、rice and the target price,includingthe forecast dividend yield when indicated.Key downside risks for HKEx include:Regulations.Exchanges are a regulated business in Hong Kong and by law HKEx is the only authorizedstock exchange in the region;this has helped protect it against competition from other t
42、rading venues.While we do not expect HKExs monopoly position to change and believe the current global regulatorytrend is in favour of holistic,un-segregated market operations,the situation could change and HKEx wouldbe adversely affected if competition increases.Policies.We have expected a meaningfu
43、l percentage of medium-term growth coming from the offshoreRMB stock trading/issuance.However,launch of this business has been delayed by poor marketconditions(although we believe its long-term outlook remains credible).Moreover,development ofoffshore RMB business is policy-driven and any potential
44、political change could affect its process.Financials.Since listing,HKEx has adhered to a 90%dividend payout ratio.It expects this to remainunchanged,regardless of the current transaction volume and market performance.However,we note thatHKEx would use gearing if the LME acquisition were successful.A
45、lso a sharp spike in interest ratesand/or substantial increase in capex,while less likely in our view,could increase its financial burden andforce it to cut the dividend payout ratio.6,abc,16,Singapore Exchange(SGX)Diversified Financials25 September 2012SGX:Valuation(SGDm unless otherwise specified)
46、,abc,_ 1st stage _,2nd stage,3rd stage,Expected NAVExpected profitsROECOE,FY13e83332338%9%,FY14e86537842%9%,FY15e93244145%9%,FY16-FY41,terminal growth,Residual incomePV of residual income,250250,302277,361305,25,8406,501,4,202367,Total valueTotal shares(end-FY13)Implied valuation(SGD)Implied PE(FY13
47、)Implied dividend yield(FY13),7,7001,0717.2023.93.9%,Source:HSBC estimatesSGX:Sensitivity of valuation toward a change in revenue growth and COE assumptions in second stage_Revenue growth(%)_,2%,3%,4%,5%,6%,7%,8%,9%,7.5%8.0%8.5%,8.78.17.5,8.78.17.5,8.78.17.5,8.78.17.5,8.78.17.5,8.78.17.5,8.78.17.5,8
48、.78.17.5,COE,9.0%9.5%10.0%10.5%11.0%,7.26.56.15.75.3,7.26.56.15.75.3,7.26.56.15.75.3,7.26.56.15.75.3,7.26.56.15.75.3,7.26.56.15.75.3,7.26.56.15.75.3,7.26.56.15.75.3,Source:HSBC estimatesSGX:Sensitivity of revenue/profit to ADT for FY2013,ADT(SGDm)Revenue(SGDm)Profit(SGDm)EPS(SGD)Notional fair value(
49、SGD)*,1,0116022720.256.0,1,1236222870.276.3,1,2486443040.286.7,1,3876693230.307.2,1,5266943420.327.6,1,6787213620.348.1,1,8467513850.368.6,Note:*Notional fair value was derived by using EPS and 24x forward PE.Source:HSBC estimatesPE trading band of SGX since 20062018SGX sh are price(S GD)14,12108642
50、0,40 x30 x20 x10 x,Ja n-06,Jul-06,Jan-07,Jul-07,Jan-0 8,Jul-08,Ja n-09,Jul-09,Jan-10,Jul-10,Jan-1 1,Jul-1 1,Jan-12,Jul-12,Source:Bloomberg,HSBC7,Singapore Exchange(SGX)Diversified Financials,abc,25 September 2012Disclosure appendixAnalyst CertificationThe following analyst(s),economist(s),and/or str
