SINGAPORE EXCHANGE LIMITED (SGX:S68)
Singapore Exchange - Attractive Amidst Likely Softer FY21F Derivatives
- Singapore Exchange (SGX:S68)’s FY20 net profit rose 21% y-o-y to SGD472m, as securities average daily value (SADV) rose 26% y-o-y to SGD1.32bn, comprising c.105% of our and Street expectations.
- While we forecast FY21 earnings to weaken y-o-y – from the reduction of licence agreements with MSCI – the YTD fall in SGX share price has reflected this already.
- SGX is attractive, since SADV could rise as more news flow emerges on the COVID-19 situation.
- Keep BUY and SGD9.20 Target Price, 13% upside with c.4% FY21F (Jun) yield. Our Target Price is pegged to 24x FY21F P/E.
FY20 equity derivatives volume decreased 3% y-o-y
- SGX (SGX:S68)'s FY20 equity derivatives volume decreased 3% y-o-y to 0.19m contracts, largely due to a sharp 17% y-o-y decline for China A50 Index futures traded. However, FY20 equity derivatives revenue rose 8% y-o-y. This accounted for a 34% share of overall turnover, due to stronger treasury, licence and other revenue.
- Going forward, we believe market volatility will keep volumes firm, although the reduction of licence agreements with MSCI – from Feb 2021 onwards – should dampen volumes.
We raise our FY21 SADV assumption by 6%.
- SGX's 4QFY20 SADV stood at SGD1.61bn (+49% y-o-y). SGX said that new retail central depository accounts rose > 35% y-o-y – reflecting increasing retail interest.
- We raise our FY21 SADV assumption to SGD1.4bn from SGD1.32bn, as developments unfolding from the COVID-19 pandemic could trigger further trading interest.
FY20 fixed income, currencies & commodities revenue rose 23% y-o-y
- SGX's FY20 fixed income, currencies & commodities revenue rose 23% y-o-y – a 16% revenue share. FY20 currencies & commodities derivatives revenue rose 25% y-o-y and has a 15% topline share, primarily driven by increased volumes in iron ore derivative contracts.
Respectable dividend yield.
- We forecast a FY21 DPS of 32 cents – implying a c.4% dividend yield – based on an 82% payout ratio.
- Management said that, going forward, the annualised quarterly DPS will be 32 cents, barring unforeseen circumstances.
- FY20 DPS was 30.5 cents. See SGX Dividend History.
Maintain BUY.
- Our SGD9.20 Target Price is pegged to 24x FY21F EPS, at 1SD above the 5-year mean of 22.5x. Given SGX Share Price’s 8% decline YTD, its valuation is attractive.
- SGX remains in a net cash position – with a monopoly over the trading of Singapore-listed equities – and the downside is deemed limited. Premised on these factors, we reiterate our BUY 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. If the COVID-19 pandemic is prolonged, trading volume could experience a gradual decline from current high levels.
Leng Seng Choon CFA
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-08-03
SGX Stock
Analyst Report
9.200
SAME
9.200
