SINGAPORE Company Update Results SINGAPORE Company Update 30 May 2011

Maintain

MITA No. 010/06/2009 MITA No. 010/06/2010

BUY
Previous Rating: BUY

Singapore Exchange Ltd

What's next?

Current Price: Fair Value:

S$7.51 S$8.97
Life after the failed merger. Since the announcement of its then proposed merger with ASX Limited in Oct 2011, Singapore Exchange's stock price has been badly hurt by market's perception of a higher-than-expected premium for the merger with ASX. Although the share price did recover modestly following the failure of the deal in April 2011, it is currently languishing at around the S$7.50 level (versus the 52-week high of S$10.26 in Oct 2010). Open to other possibilities. Meanwhile, the exchange head honcho Magnus Bocker has not revealed any other tie-ups for the organisation, but appears open to any potential discussions. There were earlier talks of possible alliance with Hong Kong, but so far, there have been no other information. Value is emerging. Potential merger aside, at current share price level, this partially reflects the present slowdown in the securities market. Trading volume has been coming off since this year's high in January. For the month of May, average trading volume is around 1.19 billion units per day worth an average traded value of S$1.47 billion. For volume, this is down 14% MoM and 26% YoY. For value, it is down 8% MoM and 18% YoY. Based on the April and May numbers, this quarter is gearing up to be at least 19% QoQ and YoY lower. However, SGX's share price has tumbled some 27% from the 4Q10 high. We believe that value is starting to emerge at current level as management is still pushing ahead with its organic growth plans, and the failed merger should not derailed its core businesses. Reiterate BUY at current level. While the current muted tone in the market could possibly drag down market sentiment for the rest of 4Q FY11, we do not expect this trend to persist into the next financial year and expect FY12 to be a better year, projecting a 14% rise in net earnings to S$309m. Current dividend yield is also decent at about 3.0%. At current price level, and for investors prepared to overlook the near term uncertainties, SGX is still a well-run, cash generative business model. Together with its recent initiatives to further widen its product offerings, including more products for its derivatives market (which saw average daily volume up 12% YoY in April 2011 to 252,401 contracts or total volume growth of 3% in Apr), it is gradually beefing up its offerings. We are reiterating our BUY rating with fair value estimate of S$8.97.

3500 3000 2500 2000 1500 1000 May-08 May-09 May-10 Jan-10 Sep-08 Sep-09 Sep-10 Jan-09 Jan-11 SGX STI

12.0 10.0 8.0 6.0 4.0 2.0

Reuters Code ISIN Code Bloomberg Code Issued Capital (m) Mkt Cap (S$m / US$m) Major Shareholders SEL Holdings Free Float (%) Daily Vol 3-mth (000) 52 Wk Range

SGXL.SI S68 SGX SP 1072 8,047 / 6,510 24.0% 51.0% 3,887 10.260 - 7.050

(S$m) Revenue Gross Profit P/NAV (x) EPS (cts) PER (x)

FY09 594.8 367.3 10.3 28.5 26.3

FY10 639.7 378.4 9.8 29.9 25.1

FY11F 689.3 354.0 10.8 25.3 29.7

FY12F 755.1 374.9 10.2 28.9 26.0

Carmen Lee (65) 6531 9802 e-mail: carmen@ocbc-research.com

Please refer to the important disclosures at the back of this document.

Singapore Exchange Ltd

SGX's Key Financial Data EARNINGS FORECAST Year Ended Jun 30 (S$m) Revenue - Securities revenue - Derivatives revenue - Other revenue Gross profit Operating expenses - Staff costs Pretax profits Net profits Net profits, excl exceptionals FY09 FY10 FY11F FY12F BALANCE SHEET As at Jun 30 (S$m) Cash and cash equivalents * Inventories Property, plant, equipment Total assets Debt Current liabilities excluding debt Total liabilities Shareholders equity Total equity Total equity and liabilities FY09 FY10 FY11F FY12F

594.8 238.8 156.0 200.0 367.3 227.6 100.1 368.6 305.7 305.7

639.7 296.0 131.2 212.5 378.4 261.4 110.8 383.3 320.1 320.1

689.3 308.4 147.5 233.4 354.0 335.2 119.6 333.6 270.7 270.7

755.1 342.9 156.3 255.9 374.9 380.2 136.7 374.7 309.1 309.1

645.2 543.9 26.4 1,417.0 0.0 638.9 638.9 414.9 778.1 1,417.0

672.6 463.7 9.6 1,401.1 0.0 585.2 585.2 409.8 815.9 1,401.1

605.7 689.3 35.0 1,535.3 0.0 794.5 794.5 419.3 740.8 1,535.3

669.9 755.1 35.0 1,651.3 0.0 864.7 864.7 419.3 786.6 1,651.3

CASH FLOW Year Ended Jun 30 (S$m) Op profit before wc changes Working capital, taxes and int Net cash from operations Purchase of PP&E Other investing flows Investing CF Financing CF Net cash flow Cash at beginning of year Cash at end of year * Source: Company data, OIR estimates

FY09

FY10

FY11F

FY12F

Key RATES & RATIOS

FY09

FY10

FY11F

FY12F

368.6 -89.7 278.8 -35.4 12.6 -22.8 -432.9 -176.9 647.6 470.6

385.0 -9.9 375.1 -46.1 2.5 -43.6 -304.1 27.4 470.6 536.6

333.6 -10.9 322.7 -35.0 22.0 -13.0 -240.6 69.1 536.6 605.7

374.7 -18.3 356.4 -35.0 18.0 -17.0 -275.2 64.2 605.7 669.9

EPS (S cents) NAV per share (S cents) Gross margin (%) Pretax margin (%) Net profit margin (%) PER (x) Price/NAV (x) Dividend yield (%) ROE (%) Net gearing (%)

28.5 73.2 61.7 62.0 51.4 26.3 10.3 3.5 36.6 0.0

29.9 76.6 59.1 59.9 50.0 25.1 9.8 3.6 40.2 0.0

25.3 69.1 51.4 48.4 39.3 29.7 10.8 3.0 34.8 0.0

28.9 73.4 49.6 49.6 40.9 26.0 10.2 3.5 40.5 0.0

Note (*): The difference is due to cash set aside for SGX-DC Clearing Fund

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30 May 2011

Singapore Exchange Ltd

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds NIL shares in the above security. RATINGS AND RECOMMENDATIONS: OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and trading oriented. - However, OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. OIRs Buy = More than 10% upside from the current price; Hold = Trade within +/-10% from the current price; Sell = More than 10% downside from the current price. - For companies with less than S$150m market capitalization, OIRs Buy = More than 30% upside from the current price; Hold = Trade within +/- 30% from the current price; Sell = More than 30% downside from the current price. DISCLAIMER FOR RESEARCH REPORT This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally. Privileged/Confidential information may be contained in this message. If you are not the addressee indicated in this message (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this message that do not relate to the official business of my company shall not be understood as neither given nor endorsed by it.

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Carmen Lee Head of Research 30 May 2011