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 (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.

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.

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.

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