Citi Research, UOB Kay Hian (UOBKH) and CGS International (CGSI) have increased their target price estimates on Singapore Exchange S68 (SGX) following the group’s latest August update. Citi increased its estimate from $10.90 to 12.70, while UOB increased its estimate to $11.62, up from $10.65. CGSI increased its target price to $12.50 from $10.70.
The upgraded estimates come after SGX reported a sharp increase in the group’s securities daily average traded value (SDAV), which reached a two-year high in August. During the month, SGX’s SDAV increased 27.8% y-o-y and 18.8% m-o-m to $1.37 billion.
UOBKH analysts, Llelleythan Tan and Heidi Mo, have attributed this to an increase in market turnover value from institutional and retail investors. This aligns with their previous expectations that an uncertain macroeconomic outlook alongside possible interest rate cuts in FY2025 would improve trading velocity. Tan and Mo expect SDAV to remain elevated over the next few months given “uncertainty over the global economy, upcoming US elections and US federal interest rate policy”, likely increasing trading volume.
CGSI analyst, Andrea Choong, noted that the markets have priced the potential of monthly SDAV remaining around an estimated $1.3 billion for FY2025 to FY2026, “implying 24 times FY2025 to FY2026 P/E at $11.80.”
In addition to his higher target price, Citi analyst, Tan Yong Hong, has raised his earnings per share (EPS) estimates by 3% - 5% due to the better derivatives volumes, securities liquidity and disciplined operating expenditure. The updated target price implies 25 times P/E, “reflecting expectations for measures to boost liquidity”, Tan notes.
SGX’s derivatives daily average volume (DDAV) increased by 8.7% y-o-y and 8.5% m-o-m.
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UOBKH’s Tan and Mo attribute this to record-high foreign exchange (FX) and dynamic commodities derivative volumes but pulled down by lower equity derivative volumes. Total FX volumes grew 32.6% y-o-y and 15.8% m-o-m, reaching the highest ever in August 2024. Looking ahead, Tan and Mo expect greater total traded equity derivatives volume growth in FY2025 given an uncertain macroeconomic outlook that is “likely to boost investor risk-on sentiment”.
CGSI’s Choong recognises that the persistent uncertainties on the US Federal fund rate outlook could “keep average risk management activity”, elevating derivative volumes. Choong notes that the increased derivatives volume is an “upside risk.”
In her view, there is “still some room for SGX to re-rate” given improved operating trends compared to FY2021, although at a limited capacity. Choong recognises stronger revenues from currencies and commodities, higher levels of treasury income which can carry over to FY2025 and potentially elevated derivative volumes as evidence supporting the re-rating.
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Despite the higher target price, CGSI’s Choong has kept her “hold” call as the gradually decreasing treasury income may negate the increase in securities trading volume. Her new target price of $12.50 is pegged to the calendar year (CY) 2025 P/E of 25 times, 1 standard deviation above the 10-year mean, up from 21 times previously at mean.
UOBKH’s Tan and Mo have also maintained their “hold” call. Their new target price of $11.62 is pegged to a P/E multiple of 22 times, up from 21 times previously. The new multiple is also pegged to SGX’s historical forward average mean to FY2025 earnings.
In addition, the analysts have raised their FY2025 to FY2027 profit after tax and minority interests (patmi) forecasts by 2% - 3% to $565.1 million in FY2025, up from $555.9 million. The patmi forecasts for FY2026 and FY2027 are now $586.9 million and $604.9 million, an increase from $574.4 million and $591.9 million previously, respectively.
Unlike his peers, Citi’s Tan has maintained his “buy” rating, although he sees that there are “limited measures” beyond encouraging brokers to issue more research reports of SGX-listed companies.
As at 12.47pm, units in SGX are trading 12 cents lower or at 1.07% down at $11.11.
