Felicia Tan
RHB Group Research analyst Shekhar Jaiswal is keeping his “neutral” call on Singapore Exchange (SGX) following the release of its market statistics for the month of June.
“We maintain ‘neutral’, as [SGX’s] forward P/E is in line with the historical average despite the expectation of earnings growth in FY2023 – 2024,” he writes in his report dated July 14.
According to Jaiswal, the counter currently offers a “modest” yield of 3.3% compared to the benchmark Straits Times Index’s (STI) yield of 4%.
However, the analyst has raised his target price slightly to $10.70 from $10.40 as he lifts his earnings estimates for the FY2022 to FY2024 by 2% to 3%.
According to the analyst, the higher earnings estimates was attributable to the higher-than-expected securities daily average value (SDAV) for the month of June and for the 4QFY2022.
The higher target price is based on a target P/E of 22x FY2023’s earnings per share (EPS), in line with its historical average P/E.
“We view our target P/E as reasonable – given the expectation of a modest rise in profits in FY2023. The target price includes an environmental, social and governance (ESG) premium of 8% over its fair value of $9.90,” the analyst writes.
“Although SGX’s June SDAV of $1.17 billion decreased 4% y-o-y and 23% m-o-m, it brought the FY2022 SDAV to $1.27 billion, which was [around] 4% higher than our estimate of $1.22 billion,” he continues.
During the month, trading activity for derivatives rose strongly in June, with derivatives daily average volume (DDAV) increasing 24% y-o-y but down 9% m-o-m to 1.1m contracts. The higher trading activity was due to the sustained volatility in global markets, which drove the institutional demand for portfolio risk management, the analyst notes.
In the FY2022, the analyst estimates that SGX will report a profit of $459 million and $640 million in EBITDA. This is higher than the street estimates of $438 million and $611 million respectively.
Jaiswal’s revenue estimate of $1.11 billion is also higher than the consensus estimate of $1.09 billion.
Despite Jaiswal’s positive sentiment, the analyst warns that SGX could see higher-than-expected operating costs for the FY2022 and a slower ramp-up in revenue contributions from acquisitions.
On the other hand, a higher-than-estimated SDAV from the potential pipeline of exchange-traded funds (ETFs), REITs, and special purpose acquisition company listings; and continued global macroeconomic uncertainties leading to higher derivatives volumes, are catalysts to the counter’s share price.