SGX - RHB Invest 2017-09-18: Flattish Jul & Aug SADV But Outlook Remains Positive

SGX - RHB Invest 2017-09-18: Flattish Jul & Aug SADV But Outlook Remains Positive SINGAPORE EXCHANGE LIMITED S68.SI

SGX - Flattish Jul & Aug SADV But Outlook Remains Positive

  • For Jul and Aug 2017, Singapore Exchange (SGX)’s SADV was SGD1.18bn, marginally higher than FY17’s SGD1.12bn. We believe SADV can trend higher given recent expectations of delays in FFR hikes. 
  • Jul and Aug 2017 derivatives trading volume was down 4% vs 4QFY17, but we believe the Shenzhen-HK Stock Connect could generate stronger volumes for China A50 Index Futures’ trading going forward. 
  • Assuming FY19 SADV of SGD1.39bn, we derive an unchanged Target Price of SGD9.00 (21% upside), pegged to FY19F P/E of 24x.

We forecast FY18 securities average daily value (SADV) of SGD1.35bn.

  • SGX recorded Jul and Aug 2017 SADV of SGD1.18bn, which was slightly higher than FY17’s SGD1.12bn. 
  • We believe recent market expectations of US Federal Reserve delaying future hikes for Fed Funds Rate (FFR) – with only 47% of market players forecasting another FFR hike by 31 Jan 2018 – could stimulate equity markets and raise SADV in subsequent months. We forecast an even stronger FY19 SADV of SGD1.39bn.

SGX remains responsive to feedback from market participants. 

  • SGX had in Jul 2017 announced a market trading break from 1200-1300hrs and changed the minimum bid size for securities in the SGD1.00-1.99 price range. The changes will be effective 13 Nov 2017, and come on the back of market feedback and public consultation. We see SGX’s responsiveness as a positive.

Flattish China A50 Index Futures’ trading volume. 

  • For the months of Jul and Aug 2017, China A50 Index Futures’ average daily volume (ADV) was 269,000, which was close to 4QFY17’s 281,000. There has not been any significant volume pick-up since the commencement of the Shenzhen-Hong Kong Stock Connect in Dec 2016, but we believe volumes could trend up over the next few quarters.
  • Overall derivatives ADV (DADV) for Jul and Aug 2017 was 697,000, and we are assuming a pick-up to 794,000 for FY18.

SGX remains attractive. 

  • We forecast FY18 net profit growth of 16.9%. 
  • We peg our TP to a target FY19F P/E of 24x (1SD above the 3-year mean of 22.7x), which yields a Target Price of SGD9.00. Our TP is supported by DCF-derived fair value of SGD8.85. Our sensitivity analysis shows that even if FY19 SADV were to be lower by 20% at SGD1.11bn, SGX should trade at around SGD7.84.
  • SGX also offers an attractive FY18F dividend yield of 4.5% (FY17 of 3.8%), higher than the Singapore sovereign 10-year bond yield of 2.0%. 
  • We maintain our BUY call on SGX. 
  • The key risks to our recommendation include global economic and geo-political developments.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-09-18
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.000 Same 9.000