SINGAPORE EXCHANGE LIMITED (SGX:S68)
Singapore Exchange - Platform Play
Resilient platform poised to deliver amidst volatility
- SGX (SGX:S68)’s 1H21 PAT came ahead of Street/MKE expectations supported by contributions from recent acquisitions and stronger cash equities volumes. See SGX's announcements.
- Derivatives saw limited disruption from the departure of key contracts pointing to the resilience of its multi-asset platform. Higher contract pricing, strong equity market velocity and new product launches should continue to support earnings momentum and keep dividend visibility high, in our view.
- We raise our target price to S$11.48 from S$10.77. Maintain BUY.
Acquisitions delivering
- The integration of BidFX and Scientific Beta contributed 6% of SGX's revenues in 1H21. Strengthening demand for fixed income listings together with new product launches – especially in the ESG space – should continue to drive growth going forward, we believe.
- Management claims they are willing to leverage SGX’s balance sheet (current debt-to-equity 9.6%) for further accretive acquisitions. This should be a positive catalyst, given their track record so far.
Tailwind from cash equities, derivatives
- Derivative volumes increased 4% y-o-y despite the exit of key MSCI contracts. The newly introduced FTSE contracts seem to be gaining traction. SGX’s ability to retain liquidity here is a strong indicator of the successful execution of its multi-asset platform. While derivative fees fell 5% y-o-y on the back of introductory pricing for the new FTSE contracts, we expect this to normalise in 2H21.
- Separately, cash equity average daily traded value (ADV) increased 19% y-o-y and velocity rose to 49% (~34%). Clearing fees increased 2.5% y-o-y driven by a larger retail mix, we believe. Liquidity support by central banks and the COVID-19 recovery theme could continue to support this momentum, in our view.
- We have raised our FY21 average daily value (ADV) forecasts to S$1.3bn (from S$1.0bn).
Raise SGX target price to S$11.48. Maintain BUY
- Our changes to equity and derivative volumes and fee expectations have raised FY21-23E PAT by 1-7%. We refresh our blended multi-stage DCF (WACC 7.2%, 1% terminal growth) and peer P/E (upgraded to 29x target) price to S$11.48. See details in PDF report below. At this target price, SGX should trade at 25x FY21 P/E. See SGX Share Price; SGX Target Price; SGX Analyst Reports; SGX Dividend History; SGX Announcements; SGX Latest News.
- In past growth cycles, SGX's share price has traded up to 26-27x P/E.
Thilan Wickramasinghe
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-01-24
SGX Stock
Analyst Report
11.480
UP
10.770
