• Still NEUTRAL, with new SGD13.60 TP from SGD12.80, 6% upside. We view the measures announced by the Monetary Authority of Singapore (MAS) to revitalise the local equity market positively. While more clarity is needed on some measures, SGX should benefit from increased listings and higher trading in stocks beyond the Straits Times Index components. We lift the number of net new listings and expect the securities daily average traded value (SDAV) to rise in FY26-27 (Jun). Despite the earnings upgrade, its valuation is looking stretched amidst a still moderating growth outlook.
• Changes to estimates. We expect 9-12 net new listings in FY26-27 vs our earlier expectations of 6-8 net new listings. We also anticipate the implementation of the new as well as yet-to-be-announced policy measures to be progressive in nature. Therefore, we believe the impact of the improvement in SDAV will only be visible in FY26-27. Therefore, we raise our FY26-27 SDAV estimates by 5% each. We have left our derivatives estimates unchanged. Overall, our FY26F-27F earnings have increased by 2% each.
• Valuation basis and earnings sensitivity. To incorporate the optimism from the announced policy measures, we believe the market may imply a higher multiple to SGX's stock. We therefore raise our target P/E multiple to 22x from 21x. The stock is currently trading at 20.6x FY26F earnings, which is in line with the historical average forward P/E of 21x. Our target P/E now resides between the historical average forward P/E and its +1SD. Our TP continues to be based on blended earnings for FY25F and FY26F. We have included our FY26F earnings and TP sensitivity analysis in Figures 1 and 2. We note that our revenue and earnings estimates remain above consensus, details of which are included in Figures 3 and 4.
• Downside risks and unexciting yield. We believe there remain near-term downside risks to SGX's 2HFY25 earnings due to the weakness in recent market statistics. In our last report, we noted that the implied 2HFY25F securities turnover and derivatives trading volume based on the Jan 2025 market data are 19% and 10% below our estimates. SGX's forward yield of 3% remains unattractive when compared to the STI's forward dividend yield of 5.3%. SGX's forward yield already factors in a mid-single-digit CAGR in DPS during the forecast period. Our TP includes a 4% ESG premium to our assessed fair value for the stock.

Source: RHB Research - 24 Feb 2025