According to Jaiswal, the counter currently offers a “modest” yield of 3.3% compared to the benchmark Straits Times Index’s (STI) yield of 4%.
However, the analyst has raised his target price slightly to $10.70 from $10.40 as he lifts his earnings estimates for the FY2022 to FY2024 by 2% to 3%.
According to the analyst, the higher earnings estimates was attributable to the higher-than-expected securities daily average value (SDAV) for the month of June and for the 4QFY2022.
The higher target price is based on a target P/E of 22x FY2023’s earnings per share (EPS), in line with its historical average P/E.
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“We view our target P/E as reasonable – given the expectation of a modest rise in profits in FY2023. The target price includes an environmental, social and governance (ESG) premium of 8% over its fair value of $9.90,” the analyst writes.
“Although SGX’s June SDAV of $1.17 billion decreased 4% y-o-y and 23% m-o-m, it brought the FY2022 SDAV to $1.27 billion, which was [around] 4% higher than our estimate of $1.22 billion,” he continues.
During the month, trading activity for derivatives rose strongly in June, with derivatives daily average volume (DDAV) increasing 24% y-o-y but down 9% m-o-m to 1.1m contracts. The higher trading activity was due to the sustained volatility in global markets, which drove the institutional demand for portfolio risk management, the analyst notes.
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In the FY2022, the analyst estimates that SGX will report a profit of $459 million and $640 million in EBITDA. This is higher than the street estimates of $438 million and $611 million respectively.
Jaiswal’s revenue estimate of $1.11 billion is also higher than the consensus estimate of $1.09 billion.
Despite Jaiswal’s positive sentiment, the analyst warns that SGX could see higher-than-expected operating costs for the FY2022 and a slower ramp-up in revenue contributions from acquisitions.
On the other hand, a higher-than-estimated SDAV from the potential pipeline of exchange-traded funds (ETFs), REITs, and special purpose acquisition company listings; and continued global macroeconomic uncertainties leading to higher derivatives volumes, are catalysts to the counter’s share price.
As at 11.26am, shares in SGX are trading 13 cents higher or 1.35% up at $9.79.
