SINGAPORE EXCHANGE LIMITED (SGX) DOES IT AGAIN

SINGAPORE EXCHANGE LIMITED (SGX) DOES IT AGAIN
SGX announces yet another dividend. SGX has a practice of issuing
Dividends many times in a year and in a spread out manner. Why not
consolidate it into 2 times a year?
DIVIDEND 2 Oct 2007 4 Oct 2007 16 Oct 2007 SGD 0.3 ONE-TIER TAX
DIVIDEND 25 Apr 2007 27 Apr 2007 10 May 2007 SGD 0.02 ONE-TIER TAX
DIVIDEND 29 Jan 2007 31 Jan 2007 12 Feb 2007 SGD 0.02 ONE-TIER TAX
DIVIDEND 23 Oct 2006 26 Oct 2006 7 Nov 2006 SGD 0.02 ONE-TIER TAX
DIVIDEND 2 Oct 2006 4 Oct 2006 16 Oct 2006 SGD 0.117 ONE-TIER TAX
DIVIDEND 25 Apr 2006 27 Apr 2006 10 May 2006 SGD 0.015 ONE-TIER TAX
DIVIDEND 25 Jan 2006 27 Jan 2006 10 Feb 2006 SGD 0.015 ONE-TIER TAX
(Source: www.sgx.com)

Singapore Exchange Limited Announces Dividend TWO and a half months
before dividend pay out date for 16 Oct 2007.

Total Shares = 1,062,217,600 (SGX,
http://www.sgx.com/sgx_ar2007/pdfs/shareholders_01_statistics_shareho...,
1st Aug 2007)
Price = SGD 14.80 (04 Oct 2007)
Total Equity = $830,368k ($0.83Billion) as at (http://www.sgx.com/
sgx_ar2007/pdfs/financial_04_balance_sheets.pdf, as at 30th June 2007,
information retrieved on 04 Oct 2007) before dividend of $318,411k
Total Equity after Divident = $511,957k ($0.512billion)

The net asset backing after dividend is only SGD 0.512 billion while
the share price is trading at $14.8 is valued at market at (SGD
15.72billion).

That is like paying 14.80 dollars for something that is only worth on
paper of 48 cents. Even if SGX continue to make good money year after
year, it will take many years for late-comer shareholders to make
money based on fundamentals except to hope that SGX can continue to
grow it's revenue stream unabated.

However, stock exchanges depend heavily on volume to make money, with
the global as well as the US economy slowing down in 2008 and the sub-
prime still gradually unwinding, the odds of SGX continuing to excite
will depend much more on speculative forces such as mergers,
acquisitions and of course SGX's usual knack of timing their
announcements to perfection, declaring dividends 2 to 3 months in
advance, followed by merger news, acquisition news, declaring
quarterly results, etc. The announcements have an effect of creating a
positive image for SGX as a growth company. If herd mentality is
anything to go by, SGX prices may continue to hold firm until the 1st
bad quarter or bad news whichever comes first, then the share price
will come back to where it should belong. Which is no where near the
price of $14.80. The downside risks remain huge.

Cash Flow
As can be seen from the Cash Flow statement (http://www.sgx.com/
sgx_ar2007/pdfs/financial_08_cash_flow.pdf, obtained 04 Oct 2007), Net
cash provided by Operating Activities was $354,629k (~354m), Cash flow
from Investing Activities, by selling SGX centre for $266,269k
(~266m), this was used to offset against dividend payments of
$186,170k (~186m). The net increase in cash and cash equivalent is
$367,713k (~368m).

I look with amusement SGX. The exchange has recently gotten rid of
it's property assets and entered into a lease back agreement. For
existing shareholders it would seem a good choice as they can book the
profit gains from the asset disposal. This makes SGX earnings appear
stronger than it actually is (even though the earnings are indeed
already strong given the bull market conditions) in the last quarter.
This asset light strategy and subsequent pay out of dividends means
that the company becomes a cash cow with a smaller Net tangible asset
backing. This means that potential shareholders buying shares of the
company at this stage have to incur bigger financial risk as the
company's valuation tended more towards P/E multiples. Historical data
shows that SGX has a high covariance to the singapore economy, it is
easy to forget that the SGX has become so dependent on P/E and
dividends to justify the current price that buying buying SGX shares
face more downside risks.

With increasing trading volume, the cost of operations from renting SGX current premises can easily be masked, but when the market falls, the increased cost of operations will show up in the form of reduced cash generated from Operations.

So far SGX has managed to keep the market excited with 1 announcements
after another, coupled with the booming economy, and high frequency of
dividend payout, the share price has gained more than 400% since
2003-2004. However they are heavily reliant on trading volume for fee
income, and once the market turns, the fall could be equally drastic.

It is my personal view that SGX is over-priced. Adding to that, SGX
seems to want to create the impression that it is a perpetual dividend
stock. It even announces dividends 2.5 months prior to actual dividend
payout. Calculating valuation in this period given all the text book
valuation methods using dividends, using discounted cash flow, DDM
with Terminal value will lead to over-valuing SGX.

In creating value for the existing shareholders, it means whoever buys
SGX shares now will be the ones that will be disadvantaged.

All forms of P/E, Discounted Dividend models to value SGX would have
to take into account the fluctuating economic growths and hence the
impact of future trading volumes. The 2008 and 2009 may be as rosy as
compared to now and SGX earnings could drop rendering the future P/E
even higher. Consequently the price will have to drop once the market
once again becomes rational. SGX itself is not helping the market to
become rational, it instead wants to benefit from this irrational
market behaviour by increasing existing shareholder value.

It is my personal opinion that a regulator should NOT indulge in such
value enhancing activities. As SGX becomes more and more expensive and
less and less asset backed, a market downturn (which inevitably
happens) will be at the expense of common folks buying into a hyped up
vision.

BUYERS BEWARE.

SINGAPORE EXCHANGE LIMITED
DIVIDEND
Announced on 2007-07-30

Particulars : SGD 0.3 ONE-TIER TAX
Ex-date : 2 Oct 2007
Buy-In Last Cum Date : 5 Oct 2007
Record Date : 4 Oct 2007
Date Paid/Payable : 16 Oct 2007

quote: "Success is a thought process"

Declaration:
I do not work in the financial sector. I have from time to time a vested interest in SGX.