RHB Group Research analyst Shekhar Jaiswal is remaining “neutral” on Singapore Exchange (SGX) as the exchange’s market turnover data for the 1QFY2023 ended Sept 30 fell below his estimates.
On Oct 11, SGX reported total securities market turnover of $25.76 billion for the month of September, down 4.72% y-o-y.
The exchange’s securities daily average value (SDAV) also fell 4.72% y-o-y to $1.17 billion.
“The implied FY2023 [ending June 30, 2023] SDAV and derivatives daily average volume (DDAV), based on SGX’s 1QFY2023 reported data, were below our forecasts [by 16% and 5% respectively],” says Jaiswal.
On this, the analyst has lowered his target price on SGX to $9 from $10.30 previously.
He has also cut his earnings estimates for the FY2023 to FY2025 by 8%-9% on lower SDAV estimates.
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“Our target price is based on a target P/E of 21x on FY2023 earnings per share or EPS (vs 22x FY2023 EPS previously), which is a tad below its historical average P/E. We believe this is reasonable, given the muted near-term earnings outlook,” he writes. “Our target price includes an environmental, social and governance (ESG) premium of 8% over its fair value of $8.60.”
For the FY2023 Jaiswal has lowered his SDAV and DDAV estimates by 9% and 2% respectively.
As at his report dated Oct 20, Jaiswal notes that SGX’s valuations are starting to look compelling based on its share price of $8.47 as at the close of Oct 19.
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At that level, SGX’s FY2023 P/E of 21.2x is now below the historical average of 22x, he adds.
However, the analyst believes that muted securities market turnover in coming quarters could keep investors at bay for now. Moreover, the stock currently offers a below-market dividend of 4%, he adds.
To Jaiswal, higher-than-guided operating costs for FY2023 and a slower ramp-up in revenue contributions from acquisitions are potential downside risks to the counter.
The upside risks comprise higher-than-estimated SDAV from the potential pipeline of exchange-traded funds, REITs, and special-purpose acquisition company listings, as well as continued global macroeconomic uncertainties leading to higher derivatives volumes, he says.
As at 4.41pm, shares in SGX are trading 11 cents higher or 1.32% up at $8.46.
