• Maintain NEUTRAL and SGD8.10 Target Price pegged to 23x FY20F (Jun) P/E, 4% downside.
• We believe the strength in the China A50 Index futures trading could partly offset weakness from the soft securities average daily value (SADV). We expect a slight y-o-y decline for FY20F net profit.

Jul-Aug 2019 Derivatives Volume Rose 19% Y-o-y

• For Jul-Aug 2019, derivatives average daily contracts (DADC) traded was 968,000, close to our FY20F of 960,000. The China A50 Index futures traded accounted for 38% of volume traded in Jul-Aug 2019. We believe market volatility will keep derivatives volume firm.
• We have conservatively assumed flat FY20F DADC on expectations of slower China A50 Index futures trading, with the Hong Kong Exchange’s expected launch of the MSCI China A Index futures.

1QFY20 SADV Was Down 1% Y-o-y to SGD1.04bn

• Compared with 4QFY19, SADV was down 3% q-o-q – the weakness should lead to slower revenue from the securities business. Our assumption of FY20F SADV of SGD1.08bn is close to the current SADV level.

Respectable Dividend Yield

• Singapore Exchange (SGX:S68) declared FY19 DPS of 30 SG cents, representing a payout ratio of 82%. This is lower than FY18’s 88%. See Singapore Exchange's dividend history.
• We forecast FY20 DPS of 31 SG cents, based on an 85% payout ratio – this translates to a FY20F dividend yield of 3.6%, which is higher than the Singapore sovereign 10-year yield of 1.69%.

Strong Balance Sheet

• Singapore Exchange remains in a net cash position, with a monopoly over trading of Singapore-listed equities.

Our Target Price of SGD8.10 Is Pegged to 23x FY20F EPS, Ie Its 4-year Mean

• Hypothetically, if FY20F SADV was 20% lower than our base case at SGD0.86bn, Singapore Exchange’s fair value would be SGD7.24.
• Given Singapore Exchange’s 18% YTD share price rise, we believe the positives (particularly for the derivatives business) are largely priced in – maintain our NEUTRAL recommendation.
• Key risks are global economic fluctuations and geopolitical developments.

Source: RHB Invest Research - 8 Oct 2019