• Singapore Exchange (SGX)'s July 2022 securities daily average value (SDAV) data and derivatives daily average volume (DDAV) missed our expectations. SDAV fell 23% m-o-m as investors were broadly on the sidelines amid continued concerns over the global economy’s path. DDAV fell 4% m-o-m.
• We await management’s thoughts on SGX’s outlook at the upcoming results briefing before reviewing our forecasts. A modest growth outlook, below market dividend yield, and forward P/E being in line with historical average support our current call.
• Maintain NEUTRAL recommendation on SGX with S$10.70 target price, 8% upside and ~3% yield.

July Securities Market Turnover and Derivatives Turnover Tracking Below Our Estimates

• For the month of July, SGX's total securities market turnover value stood at S$18bn (-28% y-o-y, -30% m-o-m), with SDAV at S$901m (-25% y-o-y, -23% m-o-m). Stock investors were broadly on the sidelines for most of July amid continued concerns over the global economy’s path.
• Elsewhere, derivatives volumes declined over the previous month on reduced volatility. DDAV fell 4% m-o-m to 1m contracts.
• On an annualised basis, July SDAV is tracking 6% below our FY23 (1 Jul 2022 to 30 Jun 2023) estimate, while July derivatives trading volume is tracking 4% below our FY23 estimate.

SGX to Report FY22 Earnings on 18 Aug

• For FY22 (1 Jul 2021 to 30 Jun 2022), we expect SGX to report revenue of S$1.1bn, similar to consensus and a net profit of S$459m as compared to consensus estimates of S$444m. At present our FY23 revenue and net profit estimates are in line with consensus. We will update our views on the stock post analyst briefing.

Forward P/E Is in Line With the Historical Average

• SGX’s FY23F P/E of 21.8x is in line with its historical average and offers a modest yield of 3.3% (STI’s yield is +4%). Our target price is based on a target P/E of 22x FY23F EPS, in line with its historical average P/E. We view our target P/E as reasonable – given the expectation of a modest rise in profits in FY23F.
• The target price for SGX includes an ESG premium of 8% over its fair value of S$9.90.

• Downside risks:
  • Higher-than-estimated operating costs for FY22F getting reported in the upcoming results;
  • a slower ramp-up in revenue contributions from acquisitions.
• Upside risks:
  • Higher-than-estimated SDAV from the potential pipeline of exchange traded funds, REITs, and special purpose acquisition company listings; and
  • continued global marcoeconomic uncertainties leading to higher derivatives volumes.

Source: RHB Invest Research - 18 Aug 2022