SGX - RHB Invest 2017-03-15: Surge In February SADV

SGX - RHB Invest 2017-03-15: Surge In February SADV SINGAPORE EXCHANGE LIMITED S68.SI

SGX - Surge In February SADV

  • SADV surged 38% MoM in February to SGD1.36bn. The strength was maintained in the first half of March, with MTD SADV of SGD1.23bn. 
  • The tweaks to the domestic residential property cooling measures (announced late last week) should continue to keep the SADV strong. We are forecasting a FY17 SADV of SGD1.19bn (9MFY17: SGD1.07bn). 
  • We are hopeful of higher trading volumes for the China A50 Index Futures, following the Dec 2016 commencement of the Shenzhen-Hong Kong Stock Connect. 
  • Maintain BUY on SGX with an unchanged SGD9.10 TP (21% upside).

We lower FY17F securities average trading volume (SADV) to SGD1.19bn

  • We lower FY17F securities average trading volume (SADV) to SGD1.19bn (from SGD1.27bn), as the volume pick-up was slightly weaker than expected.
  • However, we have noted the strength in trading volumes over the past two months. February’s SADV jumped 38% MoM. Thus, we have assumed continued strength for FY18, with our FY18F SADV unchanged at SGD1.35bn.

Singapore Exchange (SGX) keeping up to date. 

  • SGX is reviewing the reintroduction of a lunch break. If implemented, this may reduce the securities market trading hours for the firm. However, we do not believe this would have a significant impact on the SADV. SGX is also enabling companies to seek a general mandate for issuance of rights shares of up to 100% of the share capital from 50% previously. This would help firms raise funds expediently.

We remain hopeful of a surge in the China A50 Index Futures trading volume. 

  • The China A50 Index Futures trading volume surged over 6-8 months after the Nov 2014 commencement of Shanghai-Hong Kong Stock Connect – trading volumes surged in 2Q15. Following the commencement of the Shenzhen-Hong Kong Stock Connect in Dec 2016, there has not been any significant volume pick-up thus far, but we believe the upside potential is there.
  • Total derivatives trading volume in February of 12.5m, or 0.67m derivatives average daily contract (DADC), was up 7% MoM. 38% of the February volume came from the China A50 Index Futures. We forecast FY17-18 DADC of 0.68m and 0.79m respectively.
  • We lower our FY17 net profit forecasts by 8% to SGD356m. This is on the back of weaker-than-expected SADV pick-up and reduced assumptions on the DADC. However, we maintain our FY18 assumptions and earnings forecasts.

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-derived fair value of SGD9.08.
  • Note that SGX’s FY17F dividend yield of 4% is attractive, compared with the sovereign 10-year bond yield of 2.4%. 
  • We maintain our BUY recommendation on the stock. 
  • The key risk to our call would be global economic trends

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-03-15
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.100 Same 9.100