• NEUTRAL, SGD10.40 TP, c.9% upside. Singapore Exchange’s May market statistics pointed to a strong MoM improvement, with securities daily average value (SDAV) and derivatives daily average volume (DDAV) rising 18% and 13%. While annualised FY22F (Jun) SDAV is now tracking ahead of our estimate, the FY22 YTD SDAV is 6% YoY lower. Consensus FY22F EBITDA and profit are 2-3% below our estimates. We maintain forecasts, as costs could surprise on the upside. While its earnings should grow in FY23, its forward P/E is now in line with the historical average.

• YTD-FY22 securities market turnover is ahead of, and derivatives turnover is in line with our estimates. Although SGX has seen a MoM increase in its cash equities turnover, its May 2022 SDAV of SGD1,505m was still down 6% YoY. This brought YTD SDAV to SGD1,283m for FY22, which is c.5% higher than our FY22F SDAV of SGD1,219m. Broad optimism over China’s economic recovery and higher volatility in global markets translated to a sustained rise in SGX’s derivatives trading activity, with DDAV at 1.17m (+23% YoY, +13% MoM). Thanks to such strong numbers in May, the YTD DDAV is now tracking in line with our FY22 estimates.

• Our FY22 estimate is above the Street forecast. We expect SGX to report SGD625m in EBITDA and SGD447m in profit for FY22 – which are higher than the Street estimates of SGD606m and SGD436m. As our revenue estimate is in line with that of the consensus, we believe the Street may be factoring in higher operating costs for FY22F. We keep our estimates unchanged, as costs could surprise on the upside.

• Valuation is in line with the historical average. SGX’s FY23F P/E is almost in line with its historical average and offers a modest yield of 3.3% (STI’s yield is +4%). Our TP of SGD10.40 is based on a target P/E of 22x, in line with its historical average P/E. We view our target P/E as reasonable – given the expectations of a modest rise in profits in FY23F. The TP includes an ESG premium of 8% over its fair value of SGD9.60.

• Risks. Downside risks: i) Higher operating costs for FY22F; ii) slower ramp-up in revenue contribution from recent acquisitions. Upside risks: i) Higher-than-estimated SDAV from the potential pipeline of exchange traded funds, REITs, and special purpose acquisition company listings; and ii) continued global macroeconomic uncertainties leading to better- than-expected derivatives volumes.

Source: RHB Research - 14 Jun 2022