Singapore Exchange - Wait for Delivery; Downgrade to HOLD

Date: 06/08/2021

Source  :  Maybank Kim Eng
Stock  :  SGX       Price Target  :  12.27      |      Price Call  :  HOLD
        Last Price  :  9.85      |      Upside/Downside  :  +2.42 (24.57%)

SGX Has Had a Good Run. Near Term Catalysts Limited

  • SGX (SGX:S68)'s FY21 PAT was behind Street expectations driven by weaker Equity segment revenues. This trend may persist with market velocity losing steam following a strong performance since the start of the pandemic.
  • SGX’s new initiatives, particularly in derivatives and FX, show promising growth, but these may take time to shine through the current integration process, where opex is set to increase significantly.
  • Following a strong performance of SGX's share price in the past 12-months, we downgrade SGX to HOLD until we wait for new business growth catalysts to resume. Switch to DBS for improving operational delivery and upside risks from write-backs.

Slower Near-term

  • The Equities revenues saw significant 2HFY21 slowdown falling 16% y-o-y. Weaker cash equities clearing, following the high base of early-pandemic trading last year, weaker equity-derivatives revenues because of MSCI to FTSE contract transition were critical impacts.
  • Treasury income, which typically contribute 16% of revenue in this segment fell 45% y-o-y in FY21 due to lower interest rates. This could likely persist in the near term. Given the strong equity re-rating in Singapore year-to-date, we think market velocity has peaked (40% in FY21) & expect some moderation going forward.
  • We estimate ADV to fall from S$1.4bn in FY21 to S$1.3bn. This still assumes 35% velocity (last seen post-GFC) supported by stronger retail participation. We have lowered FY22-23E PAT by 6-7%.

Medium Term Structural Growth Intact

  • FICC revenues saw strong growth estimate SGX's operating expenses to increase at 13% CAGR FY22-24E vs 6% in the prior 3-years. We await delivery of better revenue visibility.

Raise SGX's Target Price to S$12.27. Downgrade to HOLD

  • Given a decent management track have raised SGX's mid-cycle FY24-25E PAT forecast by 9-10%. Our blended multi-stage DCF (WACC 7.2%, 1% terminal growth) and peer P/E (27x target) target price for SGX is raised to S$12.27.
  • SGX has re-rated 29% in the past 12-months and trades 8% higher than long term mean P/E. With limited catalyst as the Group goes through integration, we downgrade SGX to HOLD.
  • We prefer DBS (SGX:D05) from an improving operational outlook and potential reserve write-backs. Read report: DBS Group - Maybank Kim Eng 2021-08-06: Visible Growth.

Source: Maybank Kim Eng Research - 6 Aug 2021

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Labels: SGX

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SGX 9.85 -0.05 (0.51%) 1,920,700 

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