RHB Bank Singapore analyst Shekhar Jaiswal is keeping his “neutral” call on the Singapore Exchange S68 (SGX Group) with a raised target price of $10 from $9.60 previously. Jaiswal’s report, dated March 18, comes after SGX’s latest operating data update for the month of February.
Based on SGX’s update, Jaiswal notes that while SGX’s securities trading data remained weak, its derivatives volume continued to meet estimates.
In February, Singapore remained the second-most actively traded equities market in Asean as SGX’s securities daily average value (SDAV) came in at $1.25 billion, 13% y-o-y and 34% m-o-m higher. At the same time, total securities turnover value grew by 13% y-o-y and 22% m-o-m to $25 billion, despite fewer trading days compared to the month before.
The exchange also saw a 34% m-o-m increase in retail accounts traded, a 12-month high, and the listing of the Singapore Institute of Advanced Medicine Holdings in February.
Despite this, on a year-to-date (ytd) basis, SGX’s securities turnover value and SDAV were respectively 8% and 10% below the same period last year. “The implied FY2024 SDAV, based on the ytd data, was 14% below our estimate. As such, we lower our FY2024 SDAV estimate by [around] 12%,” says Jaiswal.
Meanwhile, SGX’s derivatives data is tracking the analyst’s estimates on a ytd basis. Derivatives traded volume rose 9% y-o-y but fell by 11% m-o-m in February to 21.9 million contracts. Derivatives daily average volume (DDAV) climbed 9% y-o-y but fell by 2% m-o-m to 1.09 million contracts. At the same time, equities, forex, and commodities all saw a strong increase.
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“Ytd derivatives volume and DDAV are 5% and 4% above the same period last year. The implied FY2024 DDAV, based on the ytd data, was a tab above our estimate. We increase our FY2024 DDAV estimate by 0.6%,” writes Jaiswal.
A day after its market update, SGX announced, on March 12, that it plans to introduce short-term interest rate futures linked to the Singapore Overnight Rate Average (SORA) and Tokyo Overnight Average Rate (TONA) in the second half of 2024. The move comes as global investors increasingly seek more transparent and cost-effective tools to hedge and trade fluctuations in interest rates.
‘Unexciting’ valuation and dividends
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Despite the higher y-o-y dividend declared for the 1HFY2024 ended Dec 31, 2023, and its plans to boost dividends by mid-single-digit percentage in the medium term, Jaiswal still sees the group’s valuation and dividends as “still unexciting”.
That said, the analyst now estimates a “gradual increase” in dividend per share (DPS) during the forecast years of FY2024 to FY2026.
Even so, the estimated yield is still below the Straits Times Index’s (STI) forward yield of 5.7%, notes Jaiswal.
“We continue to value SGX based on a 21 times forward price-to-earnings ratio (P/E), which is in line with its historical average,” he says.
Although SGX is currently trading slightly below its historical average P/E, Jaiwal sees limited upside.
His new target price includes a 6% environmental, social and governance (ESG) premium to his fair value of $9.40.
In addition to his higher target price, the analyst has increased his FY2024 earnings estimates by 2% and his FY2025 to FY2026 earnings by 3% to 5% on the back of optimism over improvements in the FY2025 to FY2026 SDAV.
The analyst has switched to a half-yearly forecast model and have incorporated the likelihood of a lower increase in operating costs for the 2HFY2024 ending June 30 and lower capital expenditure (capex) guidance.
As at 12.00 pm, shares in SGX are trading one cent lower or 0.11% down at $9.42.
