Bank of America-Merrill Lynch keeps SGX (S68.SG) at Underperform with $8.30 target price. “2Q11 net profits should rise but not surprise” at $87.1 million, +21% on-year, +17% on-quarter, “driven by the increased securities turnover, leading to better clearing revenues as well as depository and issuer services revenues.” 

The house estimates 2Q11 daily average securities turnover at $1.77 billion, in-line with house’s FY11 assumption of $1.74 billion. “However, potential merger gains remain unclear. While SGX has cleared one regulatory hurdle, it has to clear the next...in the form of approval from the Australian Treasurer on the foreign investment rule. We remain uncertain over the prospects of the merger and the potential revenue synergies.”

 

It adds, SGX’s FY11E P/E of 26.8X remains above its historical mean which suggests that it has more than reflected the recent improvement in securities turnover.

 

Shares are flat at $8.44