SGX

SGX’s FY10 core net profit of $317m (+3.7% yoy) was a slight disappointment due to weaker-than-expected revenue and hefty operating costs. In particular, ADT of $1.54bn in FY10 falls short of our expectations while turnover velocity for FY10 continues to weaken from 67% to 59%. Derivatives revenue fell by 16% mainly due to 1) a change in customer mix while led to a decline in yields;
2) lower income from collateral mgmt as a result of interest rates;
3) depreciation of USD; and of structured warrants.

Going forward, SGX stays committed to invest in its infrastructure. With its REACH initiative, SGX could gain mkt share through the world’s fastest trading engine, state-of-the-art data centre and presence in global liquidity hubs. While the long term outlook of SGX looks positive with the REACH initiatives and strong product pipeline, we see cost pressure in the next 1-2 years. The group has proposed a final dividend of 15.75 cts/share and raised its base dividend commitment to 16 cts/share. KE maintain HOLD and our TP of $7.10 (22x FY11 PER).