• Keep NEUTRAL and SGD9.00 TP, 1% downside. The implied FY23F (Jun) securities daily average value (SDAV) based on the first four months of data is below our forecast. Thanks to a strong rise in derivatives volume across multiple asset classes, the implied FY23F derivatives daily average volume (DDAV) is tracking our forecast. There will be a downside risk to our estimate, if the ongoing softening trend in SDAV continues. After the recent rebound in Singapore Exchange’s share price, the stock looks fairly priced, amidst a muted earnings outlook.

• YTD-FY23F securities market data is below our estimate. In October, the total securities market turnover value was SGD23.1bn (-5% YoY, -10% MoM), while SDAV stood at SGD1.15bn (unchanged YoY, -1% MoM). An uncertain forecast for growth, trade, inflation, rates, and earnings throughout the month characterised Singapore's stock market activity in October. The industrial, telecommunications, technology, and energy sectors led net fund inflows, while the REIT sector was mostly responsible for net outflows. The implied FY23F SDAV, based on first four months of data for FY23, is 7% below our estimate. We leave our forecast unchanged for now.

• Strong growth in derivatives volume, in line with our expectations. Derivatives volume across multiple asset classes reached new highs amid increased trading activity by global institutions, as hopes that central banks will slow their interest-rate hike cycles offset concerns about China's economic outlook. DDAV increased to 1.1m contracts in October (+23% YoY, +8% MoM). Total derivatives traded volume was up 21% YoY but down 1% MoM to c.22m contracts. The implied FY23F DDAV, based on the first four months of data for FY23, is in line with our estimate.

• P/E valuation has reverted to mean after recent share price jump. SGX’s share price has increased 11% in the last one month and has outperformed the STI by c.2%. This has brought its forward P/E to 22.2x, which is in line with its historical 1-year forward P/E of 22.1x. Going forward, the expectation of a muted SDAV outlook could pose a downside risk to our and consensus estimates. This could keep investors at bay for now. Moreover, the stock offers a below-market dividend yield of 3.5%.

• Our TP includes an ESG premium. Our TP is based on a target P/E of 21x on FY23F EPS, which is a tad below its historical average P/E. This is reasonable, given a muted near-term earnings outlook. Our TP includes an ESG premium of 8% over its fair value of SGD8.30.

Source: RHB Research - 23 Nov 2022