SGX - RHB Invest 2017-12-04: Strong November SADV

SINGAPORE EXCHANGE LIMITED S68.SI

SGX - Strong November SADV

We are forecasting an FY18 SADV of SGD1.20bn.
Singapore Exchange (SGX) recorded October and November SADV of SGD1.12bn and SGD1.27bn respectively, and the value for the combined two months is ahead of FY17’s SGD1.12bn. The higher number of recent IPOs is a positive for the equity markets, and we project continued SADV strength in subsequent months.

Based on our assumption of FY19 SADV of SGD1.39bn, we keep our TP of SGD9.00 (19% upside), which is pegged to 24x FY19F P/E. Maintain BUY.

For the first 11 months of 2017, there were 23 new listings on the SGX, including 19 IPOs. Funds raised by the 19 IPOs totalled SGD4.6bn, ie 2x the SGD2.3bn in fund raisings posted in 2016 (See: SGX My Gateway Market Updates - SGX 2017’s IPO Fund Raisings Have Doubled 2016 Levels).
We believe there ought to be continued momentum of equities trading following these IPOs. However, with 5MYTD SADV at a softer SGD1.17bn, we lower our FY18 (Jun) SADV assumption to SGD1.20bn (from SGD1.35bn previously).
Global developments such as the federal funds rate (FFR) hike in December – which is largely expected by market players – could also stimulate trading volumes. We forecast for an even stronger FY19 SADV of SGD1.39bn.

Even though the SGX FTSE China A50 Index (China A50 Index) trading volumes were lacklustre in October (only 259,000 in daily average vs 1QFY18’s 263,000), we see potential for more trading of the China A50 Index futures. This is on the back of strong trading volumes on the HKEx equities market.
We assume FY18 DADC of 758,000, and an even stronger FY19 DADC of 821,000.

Following HKEx’s announcement that it plans to accommodate a dual-class share structure, SGX recently said it could not ignore demand for such a structure. However, it also said that this had to be weighed against investors’ interests.
Further news flow on this could impact future IPO listings on the SGX.

With the cut in FY18 SADV assumptions, we lower FY18 net profit forecasts by 6%. Despite this, we are bullish on the longer-term prospects, given the recent surge in IPO activity.
Our Target Price of SGD9.00 is pegged to a target FY19F P/E of 24x, ie 1SD above the 3-year mean of 22.7x. Even if FY19 SADV were to be lower by 20% – at SGD1.11bn – SGX should trade at around SGD7.84.

This is higher than the Singapore 10-Year Government Bond yield of 2.13%.
We maintain our BUY recommendation 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/ 2017-12-04

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.000 Same 9.000