• Stay NEUTRAL, with SGD10 TP, 9% upside. Singapore Exchange reported strong operating data for Feb-Apr 2024. Securities daily average value (SDAV) has stayed around SGD1.2bn for three consecutive months now, and derivatives daily average volume (DDAV) has seen YoY improvement YTD- CY24. With annualised data now ahead of our expectations, we raise FY24F- 26F (Jun) profit by 1.5-2.0%. While the annualised FY24F SDAV should still see a YoY decline, we remain optimistic on seeing improvements in FY25F– 26F SDAV. Our FY24F-26F profit is a tad below consensus estimates.

• The last three months of SDAV have been stronger than expected. SGX reported Feb-Apr 2024 SDAV of SGD1,252m (+13% YoY, +34% MoM), SGD1,190m (-2% YoY, -5% MoM), and SGD1,212m (+24% YoY, +2% MoM). This is a significant improvement from the previous five months, when the SDAV was well below the SGD1bn mark in each month. This led to a 20% QoQ rise in the SDAV for the Jan-Mar 2024 period, ie 3QFY24. This growth during 3QFY24 was driven by active trading around earnings releases and rebalancing of indices during the quarter, while retail net buying increased across all stock segments. We believe SDAV will remain elevated in the near term, given the rebalancing of indices, which has recently seen the announcement of the removal of five Singapore stocks from the MSCI Index. Based on data for the Jan-Apr 2024 period, the implied SDAV for 2HFY24 is 8% ahead of our estimates.

• Strong interest in derivative products continues. SGX saw record trading activity in commodity and FX derivatives in 3QFY24. 3QFY24 DDAV of 1.13m was up 12% YoY and QoQ. Derivative volume rose 36% YoY in Apr 2024 to 24.1m contracts as trading activity grew, while DDAV climbed 23% YoY to 1.15m contracts. Based on data for the Jan-Apr 2024 period, the implied DDAV for 2HFY24 is 4% ahead of our estimates. SGX stated that the average fee per contract for equity, currency, and commodity derivatives for 3QFY24 was SGD1.54, which is a tad below our 2HFY24 estimate.

• Nothing exciting is happening anytime soon. We continue to value SGX based on a 21x forward P/E, which is in line with its historical average. Our TP adds a 6% ESG premium to its fair value of SGD9.40. The stock is currently trading well below its historical average P/E amidst a lack of catalysts, and we see limited upside in the near term. Despite expectations of a gradual rise in dividends, SGX’s forward yield of c.4% remains unexciting as compared to the market yield of 5.5% and the Singapore bank sector yield of 6.1%.

Source: RHB Research - 20 May 2024