RHB Investment Research Reports

Author: rhbinvest   |   Latest post: Mon, 27 Mar 2023, 10:24 AM


Singapore Exchange- In-line FY22

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  • Maintain NEUTRAL, with new SGD10.30 TP from SGD10.70, 3% upside. Singapore Exchange’s FY22 (Jun) results did not yield any major surprises. Management is guiding for a 7-9% increase in expenses and higher-than-normal capex for FY23F. Our expectation is that while derivatives daily average volume (DDAV) will move higher, FY23F securities daily average value (SDAV) will remain muted. We lower FY23F-24F earnings by 3-4%. A modest growth outlook, below market dividend yield, and forward P/E being higher than the historical average support our current call.
  • FY22 results were in line with expectations. SGX reported its highest revenue since its listing – SGD1,099m (+4% YoY) – accounting for 99% of our estimate. Revenue growth was negatively impacted by lower yields for treasury income as well as the decline in total traded value and average clearing fee for cash equity business. PATMI grew 1% YoY to SGD451m (98% of our estimate). As per SGX, recurring PATMI lifted by 2% YoY to SGD456m. DPS for FY22 remained unchanged at 32 SG cents.
  • Guiding for elevated expenses and higher capex. SGX is guiding for 7- 9% growth in total expenses for FY23, of which 2% growth will come from the full year impact of the MaxxTrader acquisition. Much of the other increase in costs will come from higher expenses from the buildout of its OTC FX business and higher staff costs from salary increments. SGX expects expenses to grow at mid-single digit during the medium term. FY23F capex is estimated at SGD70-75m, to be used for investments in FX franchise, enhancements to its platform and system architecture, and improvements to office efficiency. The average capex for last five years was SGD50m.
  • Moderating FY23-FY24 estimates; valuation is reasonable. Accounting for higher operating costs and a likely muted SDAV in FY23F, we lower FY23F-FY24F earnings by 3-4% each. SGX’s FY23F P/E of 22.7x is now slightly above its historical average of 21.9x. With no visibility of a higher dividend payout, the stock offers a modest yield of 3.2% as compared to Singapore’s market yield of more than 4%. Our TP continues to be based on a target P/E of 22x FY23F EPS, which is in line with its historical average P/E. We view our target P/E as reasonable – given the expectation of a modest (mid-single digit) growth in profit. Our TP includes an ESG premium of 8% over its fair value of SGD9.50.
  • Risks. Downside risks: i) Higher-than-guided operating costs for FY23F, and ii) 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 - 19 Aug 2022

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Labels: SGX

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