SGX Research Report

by DMG & PARTNERS (17 June)

AVERAGE Daily Turnover (ADT) has fallen from the peak of S$3.03 billion in October 2007 to S$1.80 billion in May 2008 and S$1.54 billion for the first two weeks of June 2008.

The ADT reduction can be partly attributed to investors' increasing concern on growth in the light of surging inflation from higher commodity prices.

We also noted that the average value per share traded has been rising over the past few months. From a low of S$0.67 in June/July 2007, it has steadily risen to S$1.31 in the first two weeks of June 2008. This reflects an increased trading share coming from the blue-chips and a lower share from penny stocks. It could suggest that retail trading interest has been weakening (retailers typically trade the lower value penny stocks).

We have lowered our forecast FY2008 ADT (including structured warrants trading) from S$2.36 billion to S$2.24 billion to take into account the recent weakness in stockmarket turnover.

Our forecast FY2009 ADT has also been lowered from S$2.05 billion to S$1.90 billion. Correspondingly, we have reduced our forecast FY2008 net profit by 5.3 per cent from S$477.3 million to S$451.9 million. Our forecast FY2009 net profit is also cut by 5.9 per cent from S$392 million to S$369 million.

Our fair price is pegged to FY 2009 EPS of 18. We used a multiple of 18, which is a slight premium to the multiple of 16 that SGX traded in FY 2005, when securities market turnover fell 15 per cent y-o-y - our assumption is that FY2009 securities ADT will fall 15 per cent y-o-y to S$1.90 billion.

-Research Report by DMG & PARTNERS (17 June)