Felicia Tan Wed, Jun 15, 2022
Analysts are remaining neutral on Singapore Exchange (SGX) after the group released its market statistics for the month of May on June 10.
In May, SGX reported total securities market turnover of $28.59 billion over 19 trading days, down 5.55% y-o-y but up by 12.46% m-o-m.
Securities daily average value (SDAV) fell 6% y-o-y but rose 18% m-o-m to $1.51 billion.
Thanks to the strong m-o-m improvement in May’s figures, RHB analyst Shekhar Jaiswal now sees SGX’s securities market turnover ahead of his full-year estimates at $1.28 billion year to date (ytd), compared to Jaiswal’s FY2022 forecast of $1.22 billion.
SGX’s derivatives turnover ytd is also currently in line with his estimates for the FY2022.
“Broad optimism over China’s economic recovery and higher volatility in global markets translated to a sustained rise in SGX’s derivatives trading activity, with derivatives daily average volume (DDAV) at 1.17 million (+23% y-o-y, +13% m-o-m),” he writes in his June 14 report.
In the FY2022, Jaiswal expects SGX to bring in around $447 million in profit for the FY2022 and an EBITDA of $625 million, higher than the consensus’ estimates of $436 million and $606 million respectively.
“As our revenue estimate is in line with that of the consensus, we believe the street may be factoring in higher operating costs for FY2022. We keep our estimates unchanged, as costs could surprise on the upside,” says Jaiswal.
In his report, the analyst has kept his has kept his “neutral” call with an unchanged target price of $10.40. His target price is based on a target P/E of 22x, in line with SGX’s historical average P/E, and includes an ESG premium of 8% over its fair value of $9.60.
“We view our target P/E as reasonable – given the expectations of a modest rise in profits in FY2023,” he says.
“SGX’s FY2023F P/E is almost in line with its historical average and offers a modest yield of 3.3% (STI’s yield is +4%),” he adds.
UOB Kay Hian analyst Llelleythan Tan is also maintaining his “hold” recommendation on SGX with a slightly higher target price of $9.55 from $9.33 previously.
The revised target price is being pegged to the same FY2022 P/E multiple of 23.7x, +1 standard deviation of SGX’s historical forward P/E.
“Currently trading (24.1x FY2022 P/E) at +1 standard deviation of its historical mean, we reckon that SGX is fully valued at current price levels and do not see major potential upside,” says Tan.
To the analyst, SGX’s y-o-y decline in its SDAV was expected despite new initial public offerings (IPOs) like Nio recording the highest trading volumes upon introduction.
To this end, Tan is estimating SDAV to “hit a floor” in the 2QFY2023 – or the period between October to December 2022 – barring any unexpected surge in trading volatility.
SGX’s m-o-m SDAV growth of 18.4% was considered “impressive” in his view, considering that May had one less trading day compared to April’s 20 trading days.
In May, the surge in DDAV, which were driven by the heightened volatility from the ongoing Russo-Ukraine conflict and renewed optimism over China’s economic recovery, stood slightly above Tan’s expectations.
During the month, SGX reported total equity index futures of 15.7 million contracts, up 20.9% y-o-y and 3.8% m-o-m as major contracts posted robust growth.
In May, FTSE China A50 Index volumes continued its uptrend at 8.6 million contracts, up 24.5% y-o-y but down 5.7% m-o-m, as SGX’s commanding market share continues to hold up well against HKEX’s MSCI China A50 Index futures.
Other equity index futures such as MSCI Singapore Index, the FTSE Nikkei 225 Index and FTSE Nifty 50 Index, which posted y-o-y and m-o-m growths, also outperformed.
SGX’s fixed income, currencies and commodities (FICC) segment saw record-high volumes in May as trading volatility remained elevated.
To Tan, the segment is “poised” for robust revenue growth in the FY2022, thanks to the currencies and commodities sub-segments.
“Driven by increased demand for risk management, record-high currency trading volumes for April and May have surpassed expectations, with currency trading volumes [in January to May] up 12.0% y-o-y,” he says. “Supply chain disruptions, concerns facing China’s recovery and macro-economic uncertainty have also led to a surge in commodity trading volumes.”
To this end, Tan has raised his PATMI forecasts for the FY2022 to FY2024 by 2% to 4% on the back of higher growth assumptions in SGX’s FICC segment.
“We now forecast FY2022-FY2024 PATMI at $431.1 million ($421.3 million previously), $486.3 million ($469.8 million previously) and $539.0 million ($514.5 million previously) respectively,” he writes.
“We are becoming more optimistic that competition in the China A50 Index futures market would be muted moving forward. We think significant revenue from new initiatives such as SGX’s Forex Electronic Communication Network would take time to gestate, and major success from these initiatives could re-rate SGX to trade at levels similar to peers’ average (28.2x),” he adds.
As at 12.14pm, shares in SGX are trading 17 cents higher or 1.76% up at $9.81.