Singapore Exchange - RHB Invest 2022-11-23: Strong Derivatives Volume In October

SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Exchange - Strong Derivatives Volume In October

The implied FY23F (Jul 2022 to Jun 2023) securities daily average value (SDAV) of Singapore Exchange (SGX:S68) based on the first four months of data is below our forecast. Thanks to a strong rise in derivatives volume across multiple asset classes, the implied FY23F derivatives daily average volume (DDAV) is tracking our forecast.
There will be a downside risk to our estimate, if the ongoing softening trend in SDAV continues.

After the recent rebound in SGX's Share Price, the stock looks fairly priced, amidst a muted earnings outlook.

In October, the total securities market turnover value of SGX was S$23.1bn (-5% y-o-y, -10% m-o-m), while SDAV stood at S$1.15bn (unchanged y-o-y, -1% m-o-m).
An uncertain forecast for growth, trade, inflation, rates, and earnings throughout the month characterised Singapore's stock market activity in October.
The industrial, telecommunications, technology, and energy sectors led net fund inflows, while the REIT sector was mostly responsible for net outflows. See SGX Weekly Fund Flow By Sector.
The implied FY23F SDAV, based on first four months of data for FY23, is 7% below our estimate. We leave our forecast unchanged for now.

Derivatives volume across multiple asset classes reached new highs amid increased trading activity by global institutions, as hopes that central banks will slow their interest-rate hike cycles offset concerns about China's economic outlook. DDAV increased to 1.1m contracts in October (+23% y-o-y, +8% m-o-m).
Total derivatives traded volume was up 21% y-o-y but down 1% m-o-m to ~22m contracts. The implied FY23F DDAV, based on the first four months of data for FY23, is in line with our estimate.

SGX's Share Price has increased 11% in the last one month and has outperformed the STI by ~2%. This has brought its forward P/E to 22.2x, which is in line with its historical 1-year forward P/E of 22.1x.
Going forward, the expectation of a muted SDAV outlook could pose a downside risk to our and consensus estimates. This could keep investors at bay for now. Moreover, the stock offers a below-market dividend yield of 3.5%.

Our target price for SGX is based on a target P/E of 21x on FY23F EPS, which is a tad below its historical average P/E. This is reasonable, given a muted near-term earnings outlook.
Our target price for SGX includes an ESG premium of 8 % over its fair value of S$8.30.
See
Keep NEUTRAL on SGX with S$9.00 target price, 1% downside.

Shekhar Jaiswal RHB Securities Research | https://www.rhbgroup.com/ 2022-11-23

SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 9.000 SAME 9.000