• Maintain NEUTRAL and SGD10.70 TP, 8% upside and c.3% yield. July securities daily average value (SDAV) data and derivatives daily average volume (DDAV) missed our expectations. SDAV fell 23% MoM as investors were broadly on the sidelines amid continued concerns over the global economy’s path. DDAV fell 4% MoM. We await management’s thoughts on Singapore Exchange’s outlook at the upcoming results briefing before reviewing our forecasts. A modest growth outlook, below market dividend yield, and forward P/E being in line with historical average support our current call.

• JulY securities market turnover and derivatives turnover tracking below our estimates. For the month of July, total securities market turnover value stood at SGD18bn (-28% YoY, -30% MoM), with SDAV at SGD901m (-25% YoY, -23% MoM). Stock investors were broadly on the sidelines for most of July amid continued concerns over the global economy’s path. Elsewhere, derivatives volumes declined over the previous month on reduced volatility. DDAV fell 4% MoM to 1m contracts. On an annualised basis, July SDAV is tracking 6% below our FY23 (Jun) estimate, while July derivatives trading volume is tracking 4% below our FY23 estimate.

• SGX to report FY22 earnings on 18 Aug. For FY22, we expect SGX to report revenue of SGD1.1bn, similar to consensus and a net profit of SGD459m as compared to consensus estimates of SGD444m. At present our FY23 revenue and net profit estimates are in line with consensus. We will update our views on the stock post analyst briefing.

• Forward P/E is in line with the historical average. SGX’s FY23F P/E of 21.8x is in line with its historical average and offers a modest yield of 3.3% (STI’s yield is +4%). Our TP is based on a target P/E of 22x FY23F EPS, in line with its historical average P/E. We view our target P/E as reasonable – given the expectation of a modest rise in profits in FY23F. The TP includes an ESG premium of 8% over its fair value of SGD9.90.

• Risks. Downside risks: i) Higher-than-estimated operating costs for FY22F getting reported in the upcoming results; ii) a slower ramp-up in revenue contributions from acquisitions. Upside risks: i) Higher-than- estimated SDAV from the potential pipeline of exchange traded funds, REITs, and special purpose acquisition company listings; and ii) continued global macroeconomic uncertainties leading to higher derivatives volumes.

Source: RHB Research - 18 Aug 2022