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


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.

YTD-FY23F securities market data is below our estimate.

  • 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.

Strong growth in derivatives volume, in line with our expectations.

  • 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.

P/E valuation has reverted to mean after recent share price jump.

  • 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 includes an ESG premium.

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