RHB Bank Singapore analyst Shekhar Jaiswal is maintaining his “neutral” call on the Singapore Exchange S68 (SGX), as he continues to see limited upside in the near term amid a lack of catalysts, according to his July 10 note.
The analyst has a target price of $10.40 for the exchange, representing an 8% upside, as he mentions that “SGX’s forward yield of 3.7% remains unexciting”.
Jaiswal notes that the SGX reported a rise in 4QFY2024 securities daily average (SDAV) although the June securities turnover data disappointed.
SGX’s June SDAV came in at $1.1 billion, -7% y-o-y and -13% m-o-m, after four consecutive months of about $1.2 billion data, says the analyst. Nevertheless, 4QFY2024 SDAV was up 7% q-o-q and 12% y-o-y, and 2HFY2024 securities turnover rose about 18% h-o-h, he continues.
“Thanks to this strong operating data, we expect cash equities revenue to increase by about 9% h-o-h. In 2HFY2024, SGX noted that Singapore was the second most actively traded market in the ASEAN region during the June quarter (i.e. 4QFY2024), as the Straits Times Index (STI) advanced 3.4% q-o-q, thanks to the strong share price performance by Singapore banks,” says Jaiswal.
Meanwhile, the analyst notes that SGX’s derivatives continued to show strength with two consecutive quarters of sequential and YoY growth in derivatives daily average volume (DDAV).
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Total derivatives traded volume increased 5% y-o-y in June to 22.4 million contracts, with DDAV of 1.18 million contracts increasing by 10% y-o-y and 3% m-o-m. “SGX continued to see robust trading activity in its FX and commodity derivatives business, the growth of which has been much stronger than its equity derivatives business,” he says.
In 1HFY2020, equity derivatives accounted for 80% of the total derivative volume, and 20% of the volume came from FX and commodities derivatives. This has changed to a split of 58% and 42% in 2HFY2024, according to the analyst.
“We expect growth in FX and commodity derivatives to continue to surpass growth in equity derivatives in the future,” Jaiswal says.
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Finally, ahead of SGX’s FY2024 result after the market closes on Aug 7, Jaiswal estimates that the 2HFY2024 core patmi will come in at $259 million (+4.4% h-o-h).
Imputing the reported operating data for FY2024 has led to a small (<1%) reduction in core FY2024-FY2026 patmi, he notes. “We continue to value SGX based on about 21x forward P/E, which is in line with its historical average. Our target price includes a 6% environmental, social and governance premium to its fair value of $9.80,” he ends.
As at 10.04am, shares in the SGX are trading 2 cents higher or 0.208% up at $9.64.
