SGX - RHB Invest 2017-01-16: SADV Jumped In 4Q16

SINGAPORE EXCHANGE LIMITED S68.SI

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 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, 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.

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.

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.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-16

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.100 Same 9.100