Analysts are holding their breath on the Singapore Exchange (SGX) for a number of reasons. The most immediate one is the bourse operator’s 1HFY2025 ending June 30 results, which will be released on Feb 6.
At least two of the 14 research houses covering SGX are optimistic about the latter’s upcoming results, which cover 2HFY2024.
RHB Bank Singapore analyst Shekhar Jaiswal expects “strong” earnings growth with patmi up 14.7% y-o-y to $323 million and an interim dividend of 17.5 cents per share, up from 17 cents per share in 1HFY2024.
The team at UOB Kay Hian (UOBKH) Research also expects “a strong half” from SGX with a possibly higher interim dividend of 18 cents per share.
Still, RHB and UOBKH are staying “neutral” and “hold” on SGX, respectively, with target prices of $12.80 and $11.83.
SGX’s 3% yield — even with increased dividends — remains “unattractive” and “lacklustre”, say analysts from both houses; Jaiswal notes this is “well below” the market yield of 5.2%, and UOBKH analysts say there are “no near-term catalysts” to justify a higher valuation.
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But SGX shares have risen some 21% over the past year. Its rally began in August 2024, when the Monetary Authority of Singapore set up an equities market review group to explore ways to improve liquidity on the local bourse.
SGX shares surged further after a team of Morgan Stanley analysts upgraded the stock to “overweight” in a Nov 17, 2024 report with a higher target price of $14.31 from just $10.01 previously.
Citing the market review, the analysts think “seemingly stronger political will and low market expectations” could result in “a broad-based uplift in valuation multiples”. In turn, shares in SGX surged to a 52-week high of $12.85 later that month.
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Perhaps ironically, SGX’s biggest bull is from a research house based outside of Asia. Morgan Stanley analyst Nick Lord, in his latest report from Jan 10, maintained his team’s $14.31 target price, which remains the highest fair value estimate on the street.
However, Goldman Sachs Equity Research analysts Gurpreet Singh Sahi and Huang Wing are perhaps the biggest bears, with a “sell” call and a $10.50 target price.
Their biggest gripe is SGX’s high cash equity trading, clearing and settlement fees, which they calculate are three times that of the Hong Kong Stock Exchange and more than 10 times that of US exchanges.
“We see relative high listing, as well as trading and clearing, fee rates at SGX as potential risks,” said Goldman Sachs’ analysts in a Nov 21, 2024 report. “We argue that higher fee rates discourage incremental listing or trading in a venue as companies and investors can choose other venues. Furthermore, given the gap between SGX and global fee rates, any move towards lowering fee rates to encourage greater listing and trading participation could hurt SGX earnings in the near term before neutralising or positively impacting them if/when volumes follow through.”
The other catalyst analysts are waiting for is the outcome of the review group, which will arrive no later than August.
Minister for Transport and Second Minister for Finance Chee Hong Tat, who chairs the review group, has said the group does not intend to wait till the deadline and will carry out any potential measures in phases.
Some recent market suggestions, noted by UOBKH, include channelling sovereign wealth funds into the domestic stock market and listing several government-linked companies, such as the Port of Singapore Authority and Changi Airports International.
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Other ideas include the government deploying seed capital to attract commercial capital from institutional investors and family offices and streamlining listing regulations.
Among these, UOBKH analysts think channelling sovereign wealth funds into the domestic stock market, specifically small- and mid-cap stocks, will be “the most impactful”. “Given that 82%-87% of total monthly securities traded value in the past 18 months have been concentrated into Straits Times Index (STI) constituent stocks, having sovereign wealth funds such as Temasek and GIC invest into small- and mid-cap stocks would help improve the lack of liquidity plaguing the market and improve valuations.”
Deputy Prime Minister and Minister for Trade and Industry Gan Kim Yong has said it is “not practical” to rely on sovereign funds alone to sustain and support Singapore’s equity market.
Instead, any use of public funding has to catalyse commercial capital, in order to sustain trading interest in the local equities market over the long term, he adds.
Read more about the equities market review group:
- CGSI raises Bursa Malaysia’s target price after 55 IPOs in 2024 mark 19-year high
- ‘Not practical’ to rely on sovereign wealth to support, sustain Singapore equities: Gan Kim Yong
- SGX Group chairman calls for ‘bold and decisive actions’ to solve stock market’s ‘longstanding issues’
- Making the Singapore market great again
- Revitalising Singapore equities market ‘not an easy task’, says Chee Hong Tat
- MAS’s equities market review group holds first meeting, unveils 31 workstream members
- MAS launches review group to strengthen equities market; recommendations to come within a year
