• SGX's Feb 21 SDAV held steady at S$1.4bn (CY20: S$1.3bn) but derivative volumes weaker at 17.7m contracts (-11% m-o-m) due to Lunar New Year.
• Pick-up of SGX’s FTSE Taiwan Index Futures is encouraging. Market share sustained at > 90% of offshore volumes. Open interest amply above HKEX’s.
• Reiterate ADD for SGX. Buoyant market conditions should sustain trading volumes.

SDAV Held Steady at S$1.4bn, Supported by Portfolio Rebalancing

• Singapore Exchange (SGX:S68)’s SDAV held steady at S$1.4bn in Feb 21 (flattish y-o-y), keeping pace with Jan 21’s S$1.5bn momentum and above 4QCY20’s average S$1.3bn.
• However, total derivatives volumes declined 11% m-o-m to 17.7m contracts (-174% y-o-y). This was largely attributable to the Lunar New Year holidays, resulting in reduced volumes in the FTSE Taiwan, Nikkei 225, and China A50 indices. Consequently, year-to-date volumes of derivatives contracts traded track below our FY21F projection of 261m contracts, while that of SDAV was in line with our S$1.3bn estimate.

SGX’s FTSE Taiwan Index Futures Gaining Traction

• The ramp-up in volumes of SGX’s FTSE Taiwan Index futures has been encouraging, rising from 82k in Jul 20 to 2m in Jan 21. While we note a sharp decline to 1.4m contracts in Feb 21, we understand that this was largely attributable to seasonality during the festive period. These robust volumes come on the back of SGX’s successful client migration from its MSCI offering, which was completed in Nov 20.
• Take-up of HKEX’s MSCI Taiwan Index futures remains rather lacklustre, with volumes rising from 5k in Jul 20 to a peak of 184k contracts in Jan 21, before declining to 124k in Feb 21. SGX maintained a market share of > 90% of total offshore Taiwan index futures volumes and open interest of-->113k contracts in Feb 21 (vs. HKEX MSCI’s 23k).
• Although weaker derivatives volumes could present some revenue headwinds to SGX, we expect this to be offset by higher average clearing fees per contract (S$1.16 in 2QFY6/21 vs S$1.33 in FY19) given the expiry of the fee holiday on introductory FTSE product replacements (from expiring MSCI products).

Reiterate ADD; Execution Risks Moderated by Successful Migration

• We expect equity gap left by the departure of key MSCI contracts.
• SGX reiterates its focus on seeking a non-accretive M&A deal.
• Our target price for SGX is pegged to 25x FY22 P/E, 0.5 standard deviation above long term mean.
• Market volatility, spurring trading, is a catalyst.

Source: CGS-CIMB Research - 11 Mar 2021