SINGAPORE EXCHANGE LIMITED (SGX:S68)
Singapore Exchange - Wait For Delivery; Downgrade To HOLD
SGX has had a good run. Near term catalysts limited
- SGX (SGX:S68)'s FY21 PAT was behind Street expectations driven by weaker Equity segment revenues. This trend may persist with market velocity losing steam following a strong performance since the start of the pandemic.
- SGX’s new initiatives, particularly in derivatives and FX, show promising growth, but these may take time to shine through the current integration process, where opex is set to increase significantly.
- Following a strong performance of SGX's share price in the past 12-months, we downgrade SGX to HOLD until we wait for new business growth catalysts to resume. Switch to DBS for improving operational delivery and upside risks from write-backs.
Slower near-term
- The Equities revenues saw significant 2HFY21 slowdown falling 16% y-o-y. Weaker cash equities clearing, following the high base of early-pandemic trading last year, weaker equity-derivatives revenues because of MSCI to FTSE contract transition were critical impacts.
- Treasury income, which typically contribute 16% of revenue in this segment fell 45% y-o-y in FY21 due to lower interest rates. This could likely persist in the near term. Given the strong equity re-rating in Singapore year-to-date, we think market velocity has peaked (40% in FY21) & expect some moderation going forward.
- We estimate ADV to fall from S$1.4bn in FY21 to S$1.3bn. This still assumes 35% velocity (last seen post-GFC) supported by stronger retail participation. We have lowered FY22-23E PAT by 6-7%.
Medium term structural growth intact
- FICC revenues saw strong growth estimate SGX's operating expenses to increase at 13% CAGR FY22-24E vs 6% in the prior 3-years. We await delivery of better revenue visibility.
Raise SGX's target price to S$12.27. Downgrade to HOLD
- Given a decent management track have raised SGX's mid-cycle FY24-25E PAT forecast by 9-10%. Our blended multi-stage DCF (WACC 7.2%, 1% terminal growth) and peer P/E (27x target) target price for SGX is raised to S$12.27.
- See
- SGX has re-rated 29% in the past 12-months and trades 8% higher than long term mean P/E. With limited catalyst as the Group goes through integration, we downgrade SGX to HOLD.
- We prefer DBS (SGX:D05) from an improving operational outlook and potential reserve write-backs. Read report: DBS Group - Maybank Kim Eng 2021-08-06: Visible Growth.
Thilan Wickramasinghe
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-08-06
SGX Stock
Analyst Report
12.27
UP
11.480
