• NEUTRAL, SGD9.30 TP, 2% upside. Singapore Exchange’s implied FY23F (Jun) securities daily average value (SDAV) and the derivatives daily average volume (DDAV), based on the first five months of data, are tracking our forecast. While SDAV improved MoM, the YoY weakness has persisted. If this weakness continues, there could be downside risks to our FY23 estimate. SGX’s recent share price rebound has brought its forward P/E in line with the historical mean – which is fair, in view of an earnings decline in FY23F and its unexciting 3.5% dividend yield.

• Securities volume up MoM but still down YoY. In November, the total securities market turnover value was SGD27.2bn (-3% YoY, +18% MoM), while the SDAV stood at SGD1.24bn (-8% YoY, +7% MoM). The STI gained by 6.4%, and registered its strongest price performance since Mar 2021. During the month, SGX also saw the listing of NoonTalk Media on the Catalist board. NoonTalk Media is a Singapore-based media entertainment company that specialises in artist & talent management, multimedia production and event conceptualisation. The implied FY23F SADV, based on the first five months of data for FY23, is 1.3% above our estimate..

• Strong FX volume growth supports higher derivatives volume YoY. In November, the total derivatives traded volume rose to 23.7m contracts (+30% YoY, +8% MoM), the highest reported by SGX since March. The DDAV was 1.08m (+24% YoY, -2% MoM). The expectations of China’s gradual reopening and expanded government support for the country’s property sector fanned the risk-on sentiment in Asian equities, currencies and commodities. Amongst SGX’s derivative offerings, the volume of SGX FTSE A50 Index Futures increased 24% YoY to 9.3m contracts, while benchmark iron ore derivatives gained 69% YoY to 3.2m contracts. Hedging activity on SGX’s FX OTC and futures marketplace accelerated amid USD weakness. Total FX futures traded volume surged 104% YoY 4m contracts, which is an all-time high. We have provided our earnings and TP sensitivity to changes in SDAV and DDAV in Figure 5 and 6.

• The historical mean P/E seems fair. SGX’s current one year forward P/E of 22x is in line with its historical average P/E. As we foresee downside risks to our and consensus estimates from the ongoing weakness in SDAV, we recommend that investors wait for a better entry point. In addition, the stock’s dividend yield is well below the STI’s forward yield of 4.9%. Our TP is based on a target P/E of 21x on 12 months’ forward EPS. Our TP includes an ESG premium of 8% over its fair value of SGD8.60, as per our in-house proprietary methodology.

Source: RHB Research - 13 Dec 2022