SGX - SADV Jumped In 4Q16
- The Singapore securities market saw strong trading activities over the past three months. 2QFY17’s (Oct-Dec 2016) SADV of SGD1.06bn was up 9% QoQ, with strength in Nov 2016 attributable to the US Presidential elections.
- We maintain our FY17F SADV forecast of SGD1.27bn. 2QFY17 derivatives trading volumes were up a milder 3% QoQ, which appears unexciting but there is potential for more volume with the Dec 2016 commencement of the Shenzhen-HK Stock Connect.
- We maintain our BUY call with unchanged TP of SGD9.10 (26% upside).
We are projecting FY17F securities average trading volume (SADV) of SGD1.27bn
- We are projecting FY17F securities average trading volume (SADV) of SGD1.27bn, given increased trading volumes in the first few trading days of 2017. SADV jumped in 2QFY17 to SGD1.06bn, up 9% QoQ and a strong 18% YoY.
- Trading activity picked up in Nov 2016, when the US Presidential elections were held.
Expect stronger China A50 Index Futures trading volumes
- Expect stronger China A50 Index Futures trading volumes, which surged 6- 8 months after the commencement of Shanghai-HK Stock Connect in Nov 2014 – trading volumes surged in 2Q15. Following the commencement of Shenzhen-HK Stock Connect in Dec 2016, we are projecting stronger China A50 Index Futures trading volumes going forward.
- Total derivatives trading volume in 2QFY17 of 41.37m – or 674,000 derivatives average daily contract (DADC) – was up 3% QoQ. 41% of the volume in 2QFY17 came from the China A50 Index Futures. We maintain our DADC assumption of 782,000 for FY17.
Singapore Kilobar Gold Contract is Shariah-compliant.
- In late Dec 2016, SGX announced that its Singapore Kilobar Gold Contract has become the world’s first Shariah-compliant gold futures. This exchange-traded, physically delivered gold futures was launched in Oct 2014, and is now certified by Amanie Advisors to be compliant with the Shariah standard on gold.
SGX remains attractive.
- We peg our TP to a target FY18F P/E of 25x (1SD above the 2-year mean of 22.6x), which gives us an unchanged TP of SGD9.10. Our TP is supported by our DCF fair value of SGD9.20.
- Note that SGX’s FY17F dividend yield of 4.5% is attractive, compared with the sovereign 10-year bond yield of 2.4%.
- We maintain our BUY recommendation on the stock. In this report, we also introduce our FY19 forecasts.
- Key risk to our call would be global economic trends.