Morningstar Equity Research analyst Roy Van Keulen has increased his fair value estimate on the Singapore Exchange (SGX) by 3% to $13.10 from $12.57 previously, citing the stock’s rally of some 30% since August.
The surge in share price has largely been due to a combination of stronger support for market-related initiatives and previously subdued market expectations, leading to a favourable environment for valuation growth.
Singapore’s broader equities market has also shown signs of improvement, with market multiples trading above historical levels as investor confidence grows.
SGX’s healthy performance in November with the securities daily average value (SDAV) growing 51% y-o-y to $1.44 billion, climbing 17% on a m-o-m basis, has also contributed to optimism for the stock.
Despite the higher fair value, Van Keulen is maintaining his three-star rating on SGX against Morningstar’s five-tier scale. This "indicates that investors are likely to receive a fair risk-adjusted return (approximately cost of equity)”, according to Morningstar.
“It is now trading close to fair value, as the market recognises the benefits of derivative-based exchanges against a backdrop of election volatility,” writes Van Keulen in his Dec 10 note.
See also: Citi maintains ‘buy’ on SGX, lifts TP to $13.10 on sustained derivatives growth
The analyst continues that although the performance in currencies and commodities segment has been strong, he expects growth to taper down in 2HFY2025. SGX’s current financial year ends on June 30, 2025.
To date, foreign exchange futures volume has increased by 44%, while metal and dry volume grew by 16% in the previous corresponding period. Van Keulen sees that this is primarily attributable to the foreign exchange and iron ore markets, which have benefitted from speculation on US trade tariffs and China’s real estate downturn.
Similarly, volumes in the equity derivatives segment are up 20% in the prior corresponding period due to outsized volatility leading up to the US election. By contrast, cash equity trading and clearing volumes were flat compared to this time last year.
See also: SGX shares surge following Morgan Stanley's upgrade to 'overweight'
“This reflects ongoing weakness in equity markets, particularly in Singapore, which remains linked to the struggles in the Chinese economy,” he adds.
Van Keulen writes that despite China’s fiscal stimulus to spur growth in September, the likelihood of tariffs and continued economic pressures in the region negatively impacts investor sentiment and equity trading volumes.
Citi Research was the first research house to lift its target price on SGX after the release of the bourse’s October statistics. In a Nov 4 report, Citi Research analyst Tan Yong Hong lifted his target price to $13.10 from $12.70.
SGX shares then surged on Nov 18 after an upgrade by Morgan Stanley, closing 4.3% higher that day.
“Seemingly stronger political will and low market expectations mean that any new initiatives proposed in the coming nine months could be met with a broad-based uplift in valuation multiples, especially for larger cap stocks,” wrote the team of Morgan Stanley analysts in their Nov 17 report, where they upgraded SGX from “underweight” to “overweight”.
RHB Bank Singapore’s Shekhar Jaiswal then followed, raising SGX’s target price to $12.80 from $11.60 in a Nov 20 note, similarly citing the October data.
As at 11.56am, shares in SGX changed hands 18 cents lower, or 1.44% down, at $12.33. Shares in SGX have gained some 26% year to date.
