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.

WHAT PRICE HUMANITY?

quote: "Success is a thought process", "Positive thoughts generate positive outcomes"

I arrived into the Paris-Nord station from Charles de gaulle airport, I was trying to catch a train to Germany from this station. You see, the Paris-Nord station links paris with many domestic and international cities. It has more than 20 platforms. There are cafés, boulangeries, Patiseries as well as brasséries and of course many nice pubs where you can get a nice cool beer (bière).

After a long wait for the next train, and a few beers, you would expect to need the rest room to relieve yourself, but wait.

There is Mc Clean. It’s a privately run Toilet company. It seems that Mc Clean has cleverly secured a monopoly, there is only 1 toilet in the entire place.

It cost exactly 1 Euro, (NO CHANGE will be given) to get in. If you have only NOTES and no coins, too bad. If you have deposited 60 Euro cents and decided that there is not enough loose change, tough luck. Just put another 1 Euro and only then will the door open.

Surely paying 1 Euro for Humanity is cheap, isn't it?

Now, where are all the machine that change notes to coins, I did not see any.

This is surely a public place I thought. And providing for the minimum in the form of Toilet facilities should be a given. Least we decriminalize urinating in the open public .

It is deplorable that the public service has out-sourced this basic facility in the name of profit. If you can see a trend of where this is heading, France is no longer socialist country, the livelihood of the people are no longer guaranteed. And the cost of living is really getting higher and higher.

I am appalled not by the One Euro I have to pay, but by the indignity that the public service put people through and to deny a basic service unless they are paid 1 Euro. Worse still, they have brought in the highest form of security, the doors will only open when you put the coin in, else you stay out. There is no human intervention.

I am of the opinion that basic service should not be outsourced. This is the responsibility of the government. Yes, I agree there is a cost to maintaining the toilets and someone should pay for it. Perhaps a more equitable way would be to ask the shop lessees to contribute a fraction of their rent to maintain the toilet.Least the government say that this is the decision of the railway stations, railway companies such as SNCF or Thalys. It is still the government's job to mandate a minimum of public service/facility. If not why should the French pay tax? Don't the French already pay too much tax?

I have nothing against Mc Clean, but if the government allows private enterprise to get involved in such businesses, these enterprise will surely maximise profit. If the government wants to privatize toilets, at the minimum, the government should avail a minimum of free toilets while letting private enterprise focus on premium toilets with lots of frills.

Perhaps Mc Clean is not affiliated to Mc Donalds, but when I went to a certain Mc Donalds, they have apparently learnt that they can also charge people for using their toilets. They have installed a lock that only opens upon a deposit of a 0.2 Euro coin.

On another note, actually, when you take the Metro (subway), it is very often that you will smell urine stenches along the pathway, tunnels and stairs. I hate to say that perhaps that is the way people have decided to voice their opinion of the situation.

All these are insidious moves against the people by slowly but surely taking away basic rights and depriving people of the services, while the tax stays the same.It can happen to any country's citizens.If you allow the government to get away with murder (methaphorically speaking), they will.

But for now, it is time the PEOPLE of FRANCE speak-up and stand-up to such tyranny.

CHINA's HIGH Purchasing Power Parity PPP GDP as an indicator

quote: "Success is a thought process", "Positive thoughts create positive outcome"

The USA has the highest nominal GDP followed by EU, Japan and China. However once you calculate GDP using the Purchasing Power Parity (PPP) method, China comes to 2nd place at around 8 Trillion USD.

If we try to understand the way in which PPP was computed, it looks at a baskets of goods and services in which a person who earns a certain income in a certain can afford to buy locally. The underlying principle is that of an efficient market theory such that a similar product that is produced and being sold at any where in the world should be sold at the same price. But we all know that the market is distorted from time to time and inefficient and of course, no one product can span the entire globe, so naturally we can only compare and group similar goods and services without regard for brand and quality.

In other words, China produces the known basket of goods and services defined under PPP in a way that it’s people can afford. As China’s PPP is almost 3 times that of the GDP, this goes to say that China as a country is not short on finished products and goods and services for it’s people and does so affordably too as compared to many countries on the PPP list. (See Note 1)

In this respect, it would be premature to say that if China produces say 1 TV, that TV would be the same as 1 TV produced in the USA for instance. There are of course brand, quality as well as features differences amongst many other attributes. But, it would be fair to assume that for most basic goods, China has the productive capacity to produce them cheaply. (As we can conclude that only China has a big PPP to nominal GDP gap, in would be fair to assume that even if countries that import china made goods do tend to sell them with some degree of mark-up as there is no significant increase in purchasing power, parity in those countries. However, even if the PPP GPD is high, it could also mean they have high local productive capacity rather than being able to import and sell at low prices. However more studies may be needed.)

In saying so, these Chinese companies that are producing these products cheaply are surviving on the local China market. Low price is of paramount concern. Hence, once they realize the potential of trade, they will export relentlessly in search of new markets as margins are generally slim. In essence, once a foreign market can accept a China made substitute good, given the huge price differential, the sales of these companies will take off and profits will also rise for these exporters. (See Note 2)

The rest of the Chinese manufacturers will also find its way to these markets and hence price will again become depressed in markets being invaded by cheap chinese goods. With low prices, China products will gradually kill the local industries. The only ones to survive are those that has intellectual property protection, those that have innovative products as well as branding to differentiate themselves from the Cheap Chinese goods.

However, the China exporters will face huge pressures amongst themselves and some of these companies will gradually move up the value chain by innovating or upgrading their products. Some of these companies will become bankrupt due to overtrading and negative capital spread. Also
cheap manufacturing capacity in the form of China exports will cause some raw materials to become scarce (at least temporarily), and eventually these prices increases will have to be passed on to the consumer. In a fiercely competitive environment, these companies usually do not have pricing power, the companies that have key differentiators will attract more customers and once the many of their competitors are bankrupt, they will be able to command better prices and upgrade.

The increased value adding of the products will lead to better pricing power, followed by a rise in real GDP. Therefore, the gap between the REAL GDP and the GDP using the PPP measure will close.

Hence I consider the PPP as a leading indicator of the future economic progress in GDP of a country. But on the other hand, high GDP ppp versus real GDP means that China products still have some quality and branding issues to bridge.

Hence, it would be safe to say that China export boom will continue for some more time to come. The only problems that would potentially stop such growth will be trade barriers (internal or external), war or natural disasters.

Note 1: Other countries that do not have the productive capacity would have to resort to importing the/a product. If the product is not available in a low cost country, importation with it's many layers of middlemen tend to make the end sale price high thereby reducing the purchasing power. Though imports/outsourcing can often reduce pressures on increase on CPI in the case of the USA, because a lot of industries are no longer efficient, importation actually helped the USA control their CPI else real GDP growth would be negative.

Note 2: However these companies do undertake big risks in currency fluctuation, changes in raw material prices as well as many other bureaucratic and legal hurdles just to name a few. Due to the large number of chinese companies exporting, these companies tend to also compete in the foreign market and hence they do not normally have pricing power.

APPENDIX 1
http://english.people.com.cn/200404/12/eng20040412_140147.shtml
Dismal Scientist (for 2006)
1 United States 12455.83
2 Japan 4567.44
3 Germany 2791.74
4 China (Excluding Hong Kong) 2234.13
5 United Kingdom 2229.47
6 France 2126.72
7 Italy 1765.54
8 Canada 1132.44
9 Spain 1126.57
10 Brazil 795.67

APPENDIX 2
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP_PPP.pdf
PPP GDP 2005
(millions of
Ranking Economy international dollars)
1 United States 12,409,465
2 China 8,572,666a
3 Japan 3,943,754
4 India 3,815,553b
5 Germany 2,417,537
6 United Kingdom 1,926,809
7 France 1,829,559
8 Italy 1,667,753
9 Brazil 1,627,262
10 Russian Federation 1,559,934
11 Spain 1,133,539
12 Canada 1,061,236
13 Korea, Rep. 1,056,094
14 Mexico 1,052,443
15 Indonesia 847,415
16 Australia 643,066
17 Turkey 612,312
18 Argentina 558,755
19 South Africa 557,971b
20 Thailand 549,265
21 Iran, Islamic Rep. 540,207
22 Netherlands 537,675
23 Poland 533,552

References: -
1. Dismal.com
2. http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita
3. http://english.people.com.cn/200404/12/eng20040412_140147.shtml
4. http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP_PPP.pdf
5. OECD; http://www.oecd.org/faq/0,2583,en_2649_34357_1799281_1_1_1_1,00.html#1799075
6. U.S. Real GDP vs. Nominal GDP (1929-2003); http://faculty.hacc.edu/jhuang/econdata/htm/rn_gdp/rn_gdp.htm