Singapore Exchange - RHB Invest 2020-04-06: March Trading Volume Surged, But Priced In


Singapore Exchange - March Trading Volume Surged, But Priced In

  • We raise our Target Price, as we increase our earnings forecasts following the recent securities average daily value (SADV) strength. Based on Bloomberg data, Singapore Exchange (SGX:S68)'s 3QFY20 SADV surged a robust 59% y-o-y to SGD1.55bn – we expect strong 3QFY20 earnings when results are released on 24 Apr.
  • For Jan-Feb 2020, derivatives average daily contracts traded stood at 1.16m, 38% higher than 2QFY20’s 0.84m. Trade in China A50 Index futures accounted for 39% of volumes traded during this period. We believe market volatility will keep derivatives volumes firm.

3QFY20 SADV surged 59% y-o-y to SGD1.55bn.

  • When compared with 2QFY20, Singapore Exchange's SADV jumped 51% q-o-q. The sharp spike was due to significantly higher trading volumes, as investors repositioned their portfolios following the disruptions from the COVID-19 pandemic.
  • The equity market indices also showed extreme volatility during this period. We raise our FY20 SADV assumptions to SGD1.24bn from SGD1.08bn. However, we assume SADV will fall to SGD1.15bn in FY21.
  • We raise FY20F net profit by 11%, with contributions from both derivatives and equities.

Respectable dividend yield.

  • Singapore Exchange declared a FY19 DPS of 30 cents, representing a payout ratio of 82%. This is lower than FY18’s 88%. See SGX Dividend History.
  • We forecast a FY20 DPS of 35 cents, based on an 85% payout ratio – this translates into a FY20F dividend yield of 3.8%.

Strong balance sheet.

  • Singapore Exchange remains in a net cash position, with a monopoly over the trading of Singapore-listed equities.

Our new TP of SGD9.10 is pegged to 23x FY21F EPS, ie its 4-year mean.

  • Hypothetically, if FY21F SADV was 20% lower than our base case at SGD0.92bn, Singapore Exchange’s fair value should be SGD8.16. Given SGX share price’s 8% rise over the past six months, we believe the positives – particularly for equities trading volume surges – are largely priced in. Hence, we maintain our stock recommendation.
  • See SGX Share Price; SGX Target Price; SGX Analyst Reports; SGX Dividend History; SGX Announcements; SGX Latest News.
  • Key risks are global economic fluctuations and geopolitical developments. If the COVID-19 pandemic is prolonged, trading volumes could experience a gradual decline from current high levels. If COVID-19 is resolved soon, we could see another round of short-term trading volume surges.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-04-06
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 9.10 UP 8.800