Analysts are positive on Singapore Exchange S68 (SGX) after the exchange’s September monthly statistics outperformed expectations.
DBS Group Research analyst Lim Rui Wen has upgraded her call to “buy” from “hold”, with an increased target price of $12.80 from $10.20. At the same time, Citi analyst Tan Yong Hong maintains “buy”, with a target price of $12.70.
On Oct 9, SGX announced that its September 2024 securities daily average value (SDAV) registered a 66.9% y-o-y and 5.6% m-o-m growth to $1.45 billion. Derivatives average trading volume (DDAV) increased by 35.2% y-o-y and 28% m-o-m.
The report also showed record high foreign exchange (FX) futures and over the counter (OTC) FX volume growth.
Open financial exchange (OFX) FX DAV in 1QFY2025 is at US$142 billion ($185.4 billion), a 15% increase compared to 2HFY2024. OTC FX contributed $51 million, representing 8% of 2HFY2024 revenue. In comparison, OTC FX contributed $39.2 million or 6.9% to revenue in 2HFY2023.
“SGX reported robust 1QFY2025 securities SDAV $1.32 billion and DDAV 1.2 million contracts that were both ahead of Citi and the consensus”, Citi’s Tan notes.
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He adds that SGX’s securities net clearing fees for 1QFY2025 are at 2.54 basis points (bps), compared to 2.46 bps in 1QFY2024, likely due to higher retail participation. Furthermore, derivative net fee per contract is at $1.33, compared to $1.30 in 1QFY2024, given a higher volume contribution from iron ore.
The average clearing fee per contract rate for both are higher than FY2024 averages.
SGX ‘firing on multiple fronts’: DBS
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In her Oct 10 report, Lim notes that the exchange’s revenue drivers are “firing on multiple fronts” after its “strategic investments” in platforms such as Trumid, BidFX and Cobalt. Trumid is a fixed income trading platform while BidFX is an FX electronic trading solutions provider. Cobalt FX is a post-trade processing network.
“We believe the culmination of such efforts, if delivered with scale, will help propel SGX to complete its multi-asset strategy, which can also help in mitigating market cyclicality,” she writes.
In addition, Lim believes SGX should benefit from market volatility, which is expected to continue in the coming months due to the US presidential election in November. China’s stimulus package and economic outlook as well as the tensions in the Middle East are also expected to bring about volatility to the market.
Citi’s Tan agrees, adding that the latest set of market statistics are likely to bring about earnings per share (EPS) upgrades, especially if volatility is expected to remain given the global central bank’s pivot as well as optimism on the Chinese economy.
MAS review ‘potential tailwind’
To DBS’s Lim, the Monetary Authority of Singapore’s (MAS) current review on reinvigorating the market is likely to be a potential tailwind for SGX as SDAV is recognised as the key driver of the exchange’s stock price.
“Any positive developments arising from the MAS review group to rejuvenate the markets could further propel its share price, as we believe the market has yet to price in growth from increased securities trading activity arising from the MAS review,” she adds.
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In addition to her higher target price, DBS’s Lim has raised her estimated earnings for FY2025 and FY2026 by 5%, given improved trading volumes across asset classes.
DBS’s target price represents approximately 24 times forecasted FY2025 price over earnings ratio (P/E), slightly above the +1 standard deviation (s.d.) of its five year historical mean and is based on the dividend discount model.
Using a P/E cycle analysis, Citi has found that SGX has traded in a historic P/E range of 19 to 24 times with a +/-1 s.d. band. Citi’s target price is based on the mid-point of P/E level.
As at 1.13pm, shares in SGX are trading 7 cents higher or 0.60% up at $11.75.
