Singapore Exchange (SGX) - Phillip Securities 2022-12-08: Growth = Derivatives Volumes + Pricing + Treasury Income


Singapore Exchange (SGX) : Growth = Derivatives Volumes + Pricing + Treasury Income

  • Singapore Exchange (SGX)'s securities volume softening while derivatives volumes trending at 10% growth rate, and derivatives pricing climbing to record levels.
  • Pick up in treasury income to accelerate in FY23 as higher interest rates kick in. We estimate Treasury income to rise at least 8% y-o-y in FY23.
  • We maintain BUY rating on SGX with an unchanged target price of S$11.71. Our estimates remain unchanged, and our target price remains pegged to +2 standard deviation of its 5 -year mean or 26x P/E.
  • Catalysts include continued growth from derivatives volumes and fees, and higher treasury income as the higher interest rates start to kick in.

Securities volumes dip while derivatives volumes trend upwards

  • SGX’s securities volume is trending downwards, with the 5MFY23 securities daily average volume (SDAV) down 10.5% y-o-y at 1,095mil contracts as the market sentiment remained subdued due to macroeconomic factors, and the volumes moderated from a record year in FY22. However, SGX’s derivatives volume is trending upwards, with the 5MFY23 derivatives daily average volume (DDAV) up 9.4% y-o-y. As market volatility continues to rise, derivatives volume can climb for the rest of FY23e.

Treasury income to tick up in FY23

  • Treasury income dipped in FY21 and FY22 due to the low interest rate environment. However, we expect a rebound in treasury income in FY23e by 8%. We can see that SGX’s treasury income is lagging behind the Fed Fund Rates.
  • As a majority of SGX’s collateral balances (FY22: S$13.9bn) are placed in Fixed Deposits (FDs) with the tenure spread out, certain deposits have not matured yet and the interest rates have not been refreshed. Nonetheless, moving into FY23 we should expect the treasury income to recover to pre-pandemic levels as they get placed into higher interest FDs.
  • In FY20, SGX earned a yield of 98 basis points on collateral balances when Fed fund rate peaked at 2.50%.

Derivatives pricing reaching new highs

  • SGX’s equity, currency and commodities derivatives average clearing fee per contract reached new highs, at S$1.62 in 1QFY23. This is 12% higher y-o-y and 7% higher than FY22’s average clearing fee of S$1.51.
  • The uptick in derivatives pricing is mainly due to the product mix of the derivatives being traded. This is encouraging and we should see the derivatives fee continue to trend upward. However, SGX’s securities average clearing fee per contract of 2.58bps in 1QFY23 was marginally higher than FY22’s average clearing fee of 2.56bps. We should expect this to maintain at these levels going into FY23e.

Investment Actions

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-12-08
SGX Stock Analyst Report BUY MAINTAIN BUY 11.710 SAME 11.710