SGX - RHB Invest 2017-12-19: Expecting Strong SADV Amidst Surge In New Listings

SGX - RHB Invest 2017-12-19: Expecting Strong SADV Amidst Surge In New Listings SINGAPORE EXCHANGE LIMITED S68.SI

SGX - Expecting Strong SADV Amidst Surge In New Listings

  • We are forecasting a 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 to our TP of SGD9.00 (19% upside), which is pegged to 24x FY19F P/E. Maintain BUY.

The recent barrage of IPOs contributed to the strong November securities average daily value (SADV) of SGD1.27bn. 

  • 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. We believe there ought to be continued momentum of equities trading following these IPOs.
  • Our FY18 (Jun) SADV assumption is SGD1.20bn, slightly higher than 5MYTD SADV of SGD1.17bn. 
  • Global developments such as more US Fed FFR hikes in 2018 – largely expected by market players – could also stimulate trading volumes. We forecast for an even stronger FY19 SADV of SGD1.39bn.

October derivatives average daily contracts (DADC) of 786,000 are stronger than 1QFY18’s 722,000. 

  • 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 Hong Kong Exchanges (HKEx) equities market. 
  • We assume FY18 DADC of 758,000, and an even stronger FY19 DADC of 821,000.

Dual-class shares for SGX? 

  • Following HKEx’s announcement that it plans to accommodate a dual-class share structure, SGX recently said it could not ignore the 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 SGX.

SGX is an attractive investment. 

  • We forecast FY18 net profit growth of 10%. We are bullish on the longer-term prospects, given the recent surge in IPO activity. 
  • Our TP 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 FY19F SADV were to be lower by 20% – at SGD1.11bn – SGX should trade at around SGD7.84.

SGX offers an attractive FY18F dividend yield of ~4%. 

  • This is higher than the Singapore 10-Year Government Bond yield of 2.13%. We maintain our BUY recommendation on SGX. 
  • Key risks to our recommendation include global economic and geo-political developments.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-12-19
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.000 Same 9.000