Singapore Exchange
Price target:
RHB Group Research ‘neutral’ $8.60
Volume falls short
RHB Group analyst Shekhar Jaiswal has maintained his “neutral” call on Singapore Exchange
(SGX) but has lowered his target price to $8.60 from $9.40, as the group’s latest operating data has come in lower than seen, implying that the exchange’s volume for the current year ending June will fall short.
The revised target price reflects lowered earnings estimates for FY2023 ending June to FY2025. “While we expect growth to resume in FY2024, the near-term outlook for cash equities
remains weak amid low market valuations and an uncertain macroeconomic outlook,” writes Jaiswal in his March 14 note.
On March 13, the exchange reported that securities volume for February was down 33% versus February last year, implying that the volume for FY2023 will be 2.6% below what Jaiswal was expecting. “Although the Straits Times Index has outperformed its regional peers, the index was down 3.1% in February amid concerns that the US Federal Reserve could keep interest rates higher for longer, thereby translating into slower economic growth,” he adds.
However, SGX’s derivatives business continues to grow, with 19.9 million contracts traded in February, up 7% y-o-y and 4% over January. SGX says the jump in trading volume was led by optimism over China’s reopening, thereby lifting trading activity across multiple asset classes, especially in commodities and foreign exchange (forex).
The actual FY2023 average daily value for derivatives for February was still 3.4% below RHB’s estimates. With these factors, Jaiswal has lowered his target price amid a weak outlook and an “unexciting” yield of 3.7%. His revised FY2023 earnings, pegged to 20 times earnings, are now 13% below consensus.
“We maintain that SGX’s cash equity business will continue to underperform amidst decelerating global growth. Delays in major new equity listings amid low market valuation further lower the scope for a sharp increase in securities daily average value,” he writes. —