Singapore Exchange - Maybank Kim Eng 2018-04-23: A Good Quarter

Singapore Exchange - Maybank Kim Eng 2018-04-23: A Good Quarter SINGAPORE EXCHANGE LIMITED S68.SI

Singapore Exchange - A Good Quarter

3Q18 results affirm positive view; Maintain BUY

  • Maintain BUY on SGX post 3Q18 results as we see scope for earnings to improve from:
    1. stronger momentum of SDAV (securities daily avg. traded value) and
    2. derivatives business on track for growth as 3Q saw higher volumes (+34% y-o-y) across key contracts and higher open interest (+9% y-o-y).
  • 3Q18 core PATMI of SGD100.5m (+13.7% q-o-q, +21% y-o-y) was slightly ahead and the interim dividend of SGD0.05/sh was in-line with our expectation. 
  • We slightly raise our Target Price to SGD8.79 due to slight revisions to FY18-19E EPS mainly from higher securities trading and clearing revenue. Our Target Price is based on an unchanged P/E of 23x FY19E EPS, in line with its mean since 2012.

SDAV momentum could be sustained

  • SGX's 3Q18 SDAV reached SGD1.45b (+17% y-o-y), a level not seen since 4Q13. 
  • We think SDAV momentum could be sustained from more liquidity and higher market activity driven by positive sentiment. We further raise our SDAV forecasts for FY18/ 19E to SGD1.26b/ SGD1.30b from SGD1.22b/ SGD1.27b. With YTD’s SDAV now at SGD1.25b, this implies SDAV of SGD1.29b on average for the remaining months of FY18E, based on our FY18E estimate of SGD1.26b. 
  • We also lowered our average clearing fees by ~1% for FY18- 19E, as clearing fees continue to decline in 3Q18 (2.71bps vs. 2.80 bps in 3Q17) resulting from the higher participation of market makers and liquidity providers.

On new SGX India equity derivative products

  • The new SGX India equity derivative products to be launched in June 2018 will be based on reference value methodology using publicly available prices. Management expects seamless migration for market participants to roll into these new products from current Nifty products. That said, we understand that participants may choose to close out their positions in the Nifty contracts if they do not wish to migrate. 
  • We remain conservative and retain our DDAV (derivatives daily avg. vol.) forecasts unchanged. For every 10% increase in our FY19E DDAV estimates, revenue in the equity derivatives and commodities business will increase by ~8-10%, ceteris paribus.

Proxy for cyclical upside

  • SGX is a good proxy to ride the cyclical upturn as robust growth in the economy tends to bode well for capital markets. This is reflected in our forecast ROEs of ~35-36% and div. yields of ~4% in FY18-19E. 
  • SGX is also cheaper than regional peers, as it is trading at ~29% FY19E P/E discount of 19.8x vs. 27.7x for peers. 
  • Risks to our call are lower SDAV/DDAV, significant regulatory changes, potential disruptors, rising competition, and potential capital raising.

Swing Factors


  • Stronger-than-expected SDAV and derivatives daily average volume (DDAV).
  • Sizeable acquisitions or partnerships that can offer complementary or new product offerings to lift revenue.


  • Inability to price up due to competition from other exchanges and new entrants.
  • Capital-raising efforts to make large acquisitions could dilute ROEs.

Ng Li Hiang Maybank Kim Eng | 2018-04-23
SGX Stock Analyst Report BUY Maintain BUY 8.79 Up 8.730