• Stay NEUTRAL, higher SGD12.80 TP from SGD11.40, 6% upside. Singapore Exchange’s securities turnover and derivatives trading volume continues to surprise on the upside. Higher near-term market volatility, amidst the US election outcome, should keep derivative volumes elevated. We see markets changing expectations of slower interest rate cuts as positive for corporate earnings here, which are heavily weighted towards banks. We believe this raises investor interest in domestic equities and keep the securities turnover elevated. We raise our FY25F-27F (Jun) earnings by 7.5%, 5.1%, and 5%.

• Trading data exceeds estimates. October turnover and securities daily average traded value (SDAV) of SGD26.9bn and SGD1.22m were up 36% each YoY, aided by strong rises in the turnover for the top three sectors: Financials (which includes REITs), industrials, and telecommunications. SGX noted that retail investors net bought SGD210m of cash equities in October, reversing outflows from the previous month, while institutional outflows were moderate compared with ASEAN venues – underscoring the Singapore market’s resilience. FY25 YTD turnover and SDAV are up 37% and 34% YoY. October derivatives volume of 31.3m contracts and derivatives daily average volume (DDAV) of 1.42m contracts were each up 52% YoY. The volumes for derivative products were higher across all asset classes, ie equities (+61% YoY), FX (+63% YoY), and commodities (+25% YoY). FY25 YTD derivatives volume and DDAV are up 26% and 23% YoY. The implied 1HFY25 SDAV and DDAV exceeded our estimates by 8% and 12%.

• Earnings sensitivity. While we had adjusted our earnings estimates higher, we expect the market volatility to persist in the near term. With Donald Trump winning the US presidential election, markets are now pricing in a slower reduction in interest rates. We see this as positive for Singapore banks, which could see a potential uplift to their earnings outlook. This will bode well for SGX’s securities turnover, as banks account for c.40% of the STI weight as measured by market cap, while financials (which includes REITs) accounted for 57% of total market turnover in CY24. We have included our FY25F earnings and TP sensitivity to changes in SDAV and DDAV in Figures 7 and 8.

• Unexciting yield, and rolling forward our valuation basis. Although we have already built in a 4% DPS CAGR during FY24-27, SGX’s forward yield of 3% remains unexciting. We continue to value this counter based on 21x forward P/E but have rolled forward our valuation basis to blended FY25F-FY26F EPS. Our TP includes a 4% ESG premium to its fair value, given SGX’s 3.3 ESG score vs the 3.1 country median.

Source: RHB Securities Research - 21 Nov 2024