• Stay NEUTRAL, new SGD10.40 TP (from SGD10), 8% upside. The strong operating data seen during Feb-Apr 2024 continued in May 2024. Securities daily average value (SDAV) averaged at c.SGD1.2bn since Feb 2024 vs c.SGD0.9bn during Jul 2023–Jan 2024. The derivatives business remains strong, with YTDFY24 (Jun) derivatives daily average volume (DDAV) up 8% YoY. We raise FY24F-26F earnings by 1.4% each and roll forward our valuation basis to FY25. While we expect improvements in FY25–26 SDAV and earnings, our FY24–26 profit estimate remains below consensus’.

• SDAV data remains strong. We had noted in our last report that SDAV could remain elevated in the near term, given the rebalancing of indices, which recently saw the announcement of the removal of five Singapore stocks from the MSCI Index. In addition, SGX noted that SDAV surged amid robust activity around corporate earnings. SGX reported a SGD1.27bn SDAV in May (+22% YoY, +5% MoM). The total market turnover value came in at SGD26.7bn (+16 YoY, +5% MoM). Both monthly data points were the highest for the entire FY24 (Jun). Although YTD SDAV for FY24 is down 4% YoY from the data for the same period last year, the recent strength means that the implied SDAV for 2HFY24 came in 3.6% ahead of our estimates. Accordingly, we have increased 2HFY24 SDAV by 3.4%. We estimate that the SDAV will increase by 5% each year in FY25–26.

• Derivative business remains strong. China’s introduction of fiscal stimulus measures and India’s general elections translated into record high open interest across SGX’s key equity, FX, and commodity derivatives. Derivative volume rose 17% YoY in May 2024 to 23.9m contracts, while DDAV climbed 22% YoY to 1.14m contracts. Based on data for the Jan-May 2024 period, the implied DDAV for 2HFY24 is 1.3% ahead of our estimates. The positive surprises came from FX and commodity derivatives. We have increased 2HFY24 DDAV by 1.3%. We estimate that the DDAV will increase by 6% per year in FY25–26.

• Unexciting yield and no major re-rating catalysts. We continue to value SGX based on c.21x forward P/E, which is in line with its historical average. However, we have rolled forward our valuation basis from blended forward to FY25 estimates. Our TP includes a 6% ESG premium to its fair value of SGD9.80. We see limited upside in the near term amidst a lack of catalysts, as the potential increases in SDAV and DDAV seem to be already priced in. SGX’s forward yield of 3.7% remains unexciting compared to the market yield of 5.5%, despite SGX’s plans to boost dividends by a mid-single-digit percentage in the medium term.

Source: RHB Research - 12 Jun 2024