SINGAPORE EXCHANGE LIMITED (SGX:S68)
Singapore Exchange - Derivatives Business Hit By MSCI Agreement Expiry
- Singapore Exchange (SGX:S68) is reducing its licence agreements with MSCI from Feb 2021, with an expected 10-15% hit to its FY21 earnings. SGX share price could see short-term weakness, but ought to be supported by respectable yields.
- Stay NEUTRAL with new SGD8.60 Target Price from SGD9.70, 13% downside, offset by c.4% FY20F (Jun) yield. Our Target Price is pegged to 24x FY21F P/E.
SGX is reducing its licence agreements with MSCI from Feb 2021.
- The two will retain their partnership on the MSCI Singapore Index products and will both work to extend it well beyond 2021 – the MSCI Singapore futures and options remain listed. However, licence agreements for all other MSCI products will expire in Feb 2021. See SGX Announcements.
SGX sees a 10-15% hit for FY21 earnings.
- The affected MSCI contracts account for 15% of equity derivatives average daily contracts (DADC) and 12% of total DADC – the latter includes currencies and commodities. Assuming 12 months of impact, ie starting from July, and before mitigating actions, SGX sees FY21 net profit being hit by 10-15%.
- We cut FY21F net profit by 11%, mainly due to our reduction of FY21F DADC by 10% to 944,000. For the same reason, we also cut our FY22F net profit by 11%.
Respectable dividend yield.
- We forecast a FY20 DPS of 36 cents/share – giving a c.4% dividend yield – based on an 85% payout ratio. However, given our forecasted FY21 earnings contraction y-o-y, we have assumed FY21 dividend of a lower 31 cents/share. See SGX Dividend History.
- Our SGD8.60 Target Price is pegged to 24x FY21F EPS, ie 1SD above the 4-year mean of 22.5x. This news will lead to investors reviewing SGX’s valuation, particularly given the 15% SGX share price rise over the past six months.
- On the other hand, SGX remains in a net cash position – with a monopoly over the trading of Singapore-listed equities – and downside is seen as limited. Hence, we maintain our NEUTRAL call.
- See SGX Share Price; SGX Target Price; SGX Analyst Reports; SGX Dividend History; SGX Announcements; SGX Latest News.
Global economic fluctuations and geopolitical developments are key risks.
- Downside risk: If the COVID-19 pandemic is prolonged, trading volumes could experience a gradual decline from current high levels.
- Upside risk: If the pandemic is resolved soon, we could see another round ding volume surges.
Leng Seng Choon CFA
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-05-27
SGX Stock
Analyst Report
8.60
DOWN
9.700
