• Stay NEUTRAL and SGD9.80 TP, 5% upside. Singapore Exchange’s April market statistics came in below estimates. Both securities daily average value (SDAV) and derivatives daily average volume (DDAV) registered declines. Implied FY23F (Jun) SDAV and DDAV (based on data till April) are tracking 2% and 5% below our forecasts. We reiterate our view of a weak outlook for its cash equities business in the near term and maintain our below-Street estimates. SGX’s 21x forward P/E is close to its historical average, which is a fair valuation level.

• Securities volumes decline for four straight months. The STI climbed 0.4% MoM in April, ending the month with a 1.3% total return and bringing total returns for 2023’s first four months to 2.1%. SDAV did fall 23% YoY (-19% MoM) to SGD979m. For each month in 2023, the SDAV has now registered a YoY decline. The YTD securities market turnover value and SDAV for FY23 are tracking 14% and 13% below the numbers for the same period in FY22 (Figure 1). The implied FY23F SADV, based on data through February, is 2.3% below our estimate. We believe SGX could continue to see weakness in its cash equities business. We maintain our FY23F SDAV estimate of SGD1,119m, which remains below consensus.

• Total derivatives traded volumes in April was 17.7m contracts (-15% YoY, -25% MoM) with DDAV amounting to 0.93m (-10% YoY, -9% MoM). SGX said the reduced trade in equities and FX could not be offset by strong gains in commodities activities. Commodity derivatives traded volumes rose 55% YoY, led by a 63% YoY increase in benchmark iron ore volumes, but total futures traded volumes on FX slid 13% YoY – the equities index futures traded volumes was 24% lower YoY while the SGX FTSE China A50 futures volumes fell 27% YoY. YTD derivatives traded volumes and DDAV for FY23 are tracking 3% and 5% above the numbers for the same period in FY22 (Figure 2). The implied FY23F DADV, based on data through April, is 4.7% below our estimate.

• Lacks near-term catalysts, unexciting yields. While we still see fixed income, FX, and commodities businesses as key long-term growth drivers, the near-term outlook for the cash equities business stays weak, especially amidst moderating expectations local banks’ earnings. SGX’s stock offers a dismal 3.4% forward dividend yield, ie well below the STI’s 5%. Our FY23F-24F earnings are 6-7% below Street (Figure 8). We continue to value SGX by applying 21x P/E to its FY24F EPS. Our TP includes an 8% ESG premium to its SGD9.10 FV.

• ESG framework update. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a 50% weightage to the E pillar, followed by 25% each to the S and G pillars. See our 2 May thematic research for details.

Source: RHB Research - 22 May 2023