• Keep NEUTRAL, with new SGD8.60 TP from SGD9.40, 0% downside. Implied FY23F (Jun) securities daily average value (SDAV) and derivatives daily average volume (DDAV) based on operating data till February are tracking below our forecast. We lower FY23F-25F profit by 3% each to account for lower SDAV and DDAV. While we expect growth to resume in FY24F, near-term outlook for cash equities remains weak amid low market valuations and an uncertain macroeconomic outlook.

• Securities volume grew YoY in February but was flat MoM. Although the STI 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. The total securities market turnover value was also underwhelming at SGD22.1bn (-25% YoY, unchanged MoM), while the SDAV stood at SGD1.11bn (-33% YoY, -5% MoM). The YTD securities market turnover value and SDAV for FY23 are tracking 11% and 10% below the numbers for the same period in FY22. The implied FY23F SADV, based on data through February, is 2.6% below our estimate. In February, Singapore Exchange saw the listing of YKGI Limited, an established homegrown F&B operator, on its Catalist board. We believe SGX could continue to see weakness in its cash equity business and lower our FY23F SDAV estimates by 3%, which remain below consensus.

• The derivatives business continues to register growth. In February, the total derivatives traded volume was 19.9m contracts (+7% YoY, +4% MoM). DDAV amounted to 1.00m (-3% YoY, -1% MoM). SGX noted that optimism over China’s reopening had lifted trading activity across multiple asset classes, especially in commodities and FX. The implied FY23F DADV, based on data through February, is 3.4% below our estimate. Accordingly, we lower our FY23F DDAV estimates by 1.4%.

• Lowering target valuation amid a weak outlook and an unexciting yield. 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 SDAV. Following our latest downgrade in earnings, our FY23F earnings are now 13% below consensus. Amid a weak earnings outlook and an uninspiring dividend yield of 3.7%, we lower our target P/E to 20x, which is now in line with -1SD from its historical 1-year forward P/E of 22x. Our TP includes an ESG premium of 8% over its fair value of SGD8.00.

Source: RHB Research - 14 Mar 2023