In a June 15 note, Jaiswal is staying “neutral” on SGX with an unchanged target price of $9.80, which represents a 1% upside. The target price includes an 8% ESG premium to its $9.10 fair value, based on RHB’s proprietary methodology.
Both securities daily average value (SDAV) and derivatives daily average volume (DDAV) registered y-o-y declines in May.
Implied FY2023 SDAV and DDAV, based on data till May, are tracking 2% and 5% below RHB’s forecast. “We maintain our below-consensus forecasts, as we reiterate a weak outlook for its cash equities business. SGX’s forward P/E is close to its historical average, which is a fair valuation level,” says Jaiswal.
Securities volume extends decline
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Securities volume, in particular, has declined for five straight months. The SDAV jumped 7% m-o-m in May as the Straits Times Index (STI) fell 3.4% MoM amidst a sharp sell down in bank stocks, especially DBS.
Despite the MoM improvement, the SDAV continued to register a YoY decline for five consecutive months as it fell 31% to $1,043 million.
The year-to-date (ytd) securities market turnover value and SDAV for FY2023 are tracking 15% below FY2022 numbers, while the implied FY2023 SDAV, based on data through May, is 2.2% below RHB’s estimate.
Singapore depository receipts (SDRs) for three Thai blue chips started trading on May 30 and Ever Glory United Holdings was listed on the Catalist board.
SGX noted that secondary funds raised grew 14% m-o-m, led by CapitaLand Ascendas REIT ’s private placement of new units to fund its acquisitions. “We believe SGX could continue to see weakness in its cash equities business and maintain our FY2023 SDAV of $1,119 million, which remains below consensus.”
Derivatives volume follows suit
Meanwhile, DDAV has declined for four consecutive months. DDAV for May remains unchanged from the previous month at 0.93 million.
Total derivatives traded volume in May increased 16% m-o-m to 20.5 million contracts, down 8% YoY, as commodity derivatives and FX futures volumes saw strong growth.
Commodity derivatives volume rose 13% m-o-m and 55% y-o-y to 3.8 million contracts as demand for risk management grew.
Total FX futures traded volume on SGX FX grew 20% m-o-m to reach 2.9 million contracts, with market volatility ensuing in May as negotiations for a US debt ceiling deal intensified.
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The ytd derivatives traded volume and DDAV for FY2023 are tracking 2% above the FY2022 numbers, while the implied FY2023 DDAV, based on data through May, is 4.9% below our estimate.
SGX lacks near-term catalysts and sports unexciting yields, says Jaiswal.
“Ytd, SGX’s share price has outperformed the STI by 9.4%. This brings its forward P/E closer to the historical average of 22x. While we see its non-cash equity businesses as key long-term growth drivers, we maintain our below street estimates for now.”
SGX’s stock offers a “dismal” 3.3% forward dividend yield, says Jaiswal. “We continue to value SGX by applying a 21x P/E to its FY2024 earnings per share (EPS).”
As at 10.41am, shares in Singapore Exchange are trading 8 cents lower, or 0.83% down, at $9.58.
