Citi Research analyst Tan Yong Hong has downgraded Singapore Exchange (SGX) to “sell” as he expects recent optimism over the potential impact of the equities market review group to unwind.
Tan’s research note comes a week after SGX’s stellar results for 1HFY2025 ended Dec 31, 2024 and a day after the Monetary Authority of Singapore (MAS) announced the first set of measures by the review group.
On Feb 13, MAS said the group had already submitted the proposals to Singapore’s Prime Minister and Finance Minister Lawrence Wong.
One of the measures proposed is introducing tax incentives to attract enterprises and fund managers to list in Singapore. The measures also seek to incentivise the launch and growth of funds that have substantial investments in domestic equities.
Tan writes: “We earlier flagged that SGX’s 12-month forward price-to-earnings (P/E) multiple of 23.4 times reflects an optimistic outcome from the MAS review group, but commentaries not recommending GIC or Central Provident Fund involvement in domestic equities likely disappointed markets.”
Tan assumes that SGX could de-rate to an average P/E of 21 times, which then implies a potential 8% downside risk to its current share price. This means SGX would give up “much of its gains” post-1HFY2025 results.
SGX’s share price rose 13% in two days following its 1HFY2025 results on Feb 6. Operationally, January stats are generally in-line considering the Lunar New Year holidays, with February securities daily average value (SDAV) of $1.27 billion ahead of expectations.
Along with the downgrade, Tan also lowered his target price to $11.90, down from $13.10, which he had set on Nov 4, 2024.
The revised target price implies 21 times P/E — “roughly at mean level” — but this is ahead of the 19 times P/E trough in May 2024, when Tan upgraded SGX.
The review group will provide more updates on Feb 21.
Here is a look back at Tan’s calls on SGX since the start of 2024:
- Feb 8, 2024: “Sell”, $8.50
- May 27, 2024: “Buy”, $10.70
- July 22, 2024: “Buy”, $10.90
- Sept 10, 2024: “Buy”, $12.70
- Nov 4, 2024: “Buy”, $13.10
- Feb 14, 2025: “Sell”, $11.90
Prior to the midday break on Feb 14, shares in SGX were trading 74 cents lower, or 5.5% down, at $12.73.
