Singapore Exchange - Maybank Research 2022-10-06: Riding The Volatility Wave

SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Exchange - Riding The Volatility Wave

Singapore Exchange (SGX)’s derivatives platform continues to see support as investors look to mitigate and hedge risks in the current global environment. Its multi-asset strategy is a strong competitive advantage. This should continue to improve regional relevance.

SGX’s sustainability disclosures are good based on MIBG’s ESG2.0 scoring. However, there is significant headroom for improvement. Increased transparency could drive larger ESG weightings for SGX going forward, in our view.
Adjustments to market run rates and peer valuations sees us lowering target price for SGX to S$10.65.

SGX's Aug 22 market statistics show futures volumes up +4% y-o-y and options +19%. SGX’s liquid contracts in FX, commodities and indices continue to provide a competitive moat in current market volatility. This is important, as derivatives-led, non-cash equities segment is set to deliver 58% of revenues in FY23 (~ 51% FY22).
Singapore’s defensive equity market has held up better than global peers. Our derived market velocity for FY23 year-to-date at 29% - while lower than FY22 (36%) - is similar to pre-COVID FY17-19 levels. This should give some downside protection to the equities segment revenues going forward, in our view.

Under our enhanced ESG2.0 scoring, SGX receives a 56. This is above average, and the Group’s efforts in improving sustainability reporting & action in the financial sector (ESG disclosure portal, CIX carbon exchange etc.) are strong positives.
However, improvements to quantitative disclosures in areas such as waste management and diversity (female workforce at 45% vs 49% in FY20) could drive a higher score, in our view. Refer to the report attached below for more details.
Particular areas of note is in Board independence and female representation, where SGX’s proportions are significantly lower than HKEX (388 HK).

A stronger derivative outlook sees us raising FY23E EPS forecast for SGX by 3%, but listings uncertainty and new business integration expenses lowers FY24E by 3%. Our blended multi-stage DCF (WACC 7.2%, 1% terminal growth) and peer P/E (22x target – reduced from 26x) target price for SGX is lowered to S$10.65.
See
We believe SGX’s multi-asset approach gives it a strong advantage during market uncertainty, while also increasing regional relevance. Improving sustainability disclosures should also drive bigger ESG weightings.

Thilan Wickramasinghe Maybank Research | https://www.maybank-ke.com.sg/ 2022-10-06

SGX Stock Analyst Report BUY UPGRADE HOLD 10.65 DOWN 11.200