SINGAPORE EXCHANGE LIMITED
SGX
S68.SI
SGX - Some Recovery In Derivatives Volume
- We maintain BUY on SGX with an unchanged SGD8.13 TP (7% upside), and a 4% yield.
- We noticed a MoM recovery in derivatives average daily contracts for Nov 2015; the derivatives revenue share is a significant 41%.
- The recent average daily value for securities is unexciting, but in line with our FY16 assumption of SGD1.17bn.
- Our TP, which is pegged to a 23x FY17 P/E, is at a discount to the historical average of 25x and hence conservative. SGX is a monopoly in a net cash position.
Recovery in derivatives volume.
- From a peak of 1,022k derivatives average daily contracts in Jun 2015, volume fell to a low of 594k in Oct; we recently learned of a recovery in Nov to 675k contracts; as a result, for the first 5 months of FY16, the average was 747k contracts.
- A key component of derivatives volume is the China A50 Index Futures (50% share); the volatility in the Chinese equities market could lead to increased volumes traded in the futures index. We see this as a key catalyst to boost SGX’s earnings.
Securities market turnover was unexciting.
- For the period of 1st Oct 2015 until 11th Dec 2015, the Securities Average Daily Value (SADV) was SGD965m, lower than 1QFY16’s of SGD1.19bn.
- We are assuming FY16 SADV of SGD1.17bn, on the back of slightly stronger volumes as we go into early 2016. The recent mainboard listing of BHG Retail REIT, which brought the total number of REITs and property trusts listed on SGX to 39, is a positive for SGX.
Both P/E and DCF methodology yield a similar TP.
- We peg our TP to a target 23x FY17 P/E (lower than the 5-year average of 25x), which results in a TP of SGD8.13; we corroborate this result through DCF.
- We consider an investment in SGX is attractive, considering also a potential dividend yield of 4%.
Limited share price downside.
- In a worst case scenario we assume an unchanged SADV, with a P/E compression due to market conditions; thus assuming a P/E multiple at -2SD, or 20x, results in a SGD7.00 TP.
Leng Seng Choon CFA
RHB Research
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http://www.rhbinvest.com.sg/
2015-10-22
RHB Research
SGX Stock
Analyst Report
8.13
Same
8.13
