Citi Research analyst Tan Yong Hong has maintained his “buy” call on Singapore Exchange S68 (SGX) while lifting the exchange’s target price to $13.10 from $12.70.
Tan’s report dated Nov 4 comes following SGX released its 4MFY2025 trading statistics, which came ahead of Citi’s and consensus estimates. The 4MFY2025 spans from July to October.
Derivatives
In the 4MFY2025, Tan notes that the China A50 Index contracts drove 33% to 44% of total derivative volumes in FY2019 to FY2024, with growth stalling in FY2023/FY2024 due to the Hong Kong and China stock market downturn.
According to Tan, this drove earlier expectations of an annual growth of just 2%; the street also likely expected to see a “muted growth profile”.
Following the initial optimism in September, the China A50 Index contracts grew 60% m-o-m during the month, with a further 40% increase in October.
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As such, Tan revises his FY2025 estimates on the A50 growth profile to 10%, driving overall derivatives daily average traded volume (DDAV) forecast to 1.2 million contracts per day. For the 4MFY2025, DDAV averaged around 1.25 million contracts per day, he notes.
Tan is also revising his fees per contract for 1QFY2025 to $1.33, up from $1.30 in 1QFY2024 or 2% higher y-o-y.
Securities
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Meanwhile, SGX’s securities daily average traded volume (SDAV) normalised to $1.2 billion, in line with regional exchanges amid the uncertainties arising from the US elections.
Singapore’s total stock market turnover fell 9% m-o-m. At the same time, Malaysia, the Philippines and Thailand experienced a decline in total m-o-m stock market turnover of 22%, 19% and 12%, respectively. This comes despite the deployment of the Vayupak fund in Thailand.
Given the upcoming US presidential elections concluding in the first week of November, corporate 3QFY2024 reporting and Federal bank plays, Tan expects SGX’s SDAV to recover.
As such, the analyst revises his SDAV forecast by a “conservative” 4% to $1.18 billion, with SDAV for 4MFY2025 coming in around $1.29 billion.
Tan increases his 1QFY2025 fees at 2.54 basis points (bps), compared to 1QFY2024’s 2.46 bps, representing a 3.2% growth y-o-y.
Following the changes in earnings for securities and derivatives, Tan lifts his FY2025 to FY2027 estimated earnings by up to 4%.
“Post revisions, our earnings are 2% to 5% ahead of consensus, driven by better volume assumptions and higher fees,” Tan adds.
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His new target price implies 24 times SGX’s 12-month forward price-to-book-earnings ratio.
“Post revisions, our earnings are 2% - 5% ahead of [the] consensus driven by better volume assumptions and higher fees. SGX also raised selected derivative contract pricing with effect from October 2024,” he says.
As at 11.08am, units in SGX are trading 2 cents higher or 0.176% up at $11.37.
