• Singapore Exchange (SGX:S68)’s FY20 net profit rose 21% y-o-y to SGD472m, as securities average daily value (SADV) rose 26% y-o-y to SGD1.32bn, comprising 105% of our and Street expectations.
• While we forecast FY21 earnings to weaken y-o-y – from the reduction of licence agreements with MSCI – the YTD fall in SGX share price has reflected this already.
• SGX is attractive, since SADV could rise as more news flow emerges on the COVID-19 situation.
• Keep BUY and SGD9.20 Target Price, 13% upside with 4% FY21F (Jun) yield. Our Target Price is pegged to 24x FY21F P/E.

FY20 Equity Derivatives Volume Decreased 3% Y-o-y

• SGX (SGX:S68)'s FY20 equity derivatives volume decreased 3% y-o-y to 0.19m contracts, largely due to a sharp 17% y-o-y decline for China A50 Index futures traded. However, FY20 equity derivatives revenue rose 8% y-o-y. This accounted for a 34% share of overall turnover, due to stronger treasury, licence and other revenue.
• Going forward, we believe market volatility will keep volumes firm, although the reduction of licence agreements with MSCI – from Feb 2021 onwards – should dampen volumes.

We Raise Our FY21 SADV Assumption by 6%

• SGX's 4QFY20 SADV stood at SGD1.61bn (+49% y-o-y). SGX said that new retail central depository accounts rose > 35% y-o-y – reflecting increasing retail interest.
• We raise our FY21 SADV assumption to SGD1.4bn from SGD1.32bn, as developments unfolding from the COVID-19 pandemic could trigger further trading interest.

FY20 Fixed Income, Currencies & Commodities Revenue Rose 23% Y-o-y

• SGX's FY20 fixed income, currencies & commodities revenue rose 23% y-o-y – a 16% revenue share. FY20 currencies & commodities derivatives revenue rose 25% y-o-y and has a 15% topline share, primarily driven by increased volumes in iron ore derivative contracts.

Respectable Dividend Yield

• We forecast a FY21 DPS of 32 cents – implying a 4% dividend yield – based on an 82% payout ratio.
• Management said that, going forward, the annualised quarterly DPS will be 32 cents, barring unforeseen circumstances.
• FY20 DPS was 30.5 cents.

Maintain BUY

• Our SGD9.20 Target Price is pegged to 24x FY21F EPS, at 1SD above the 5-year mean of 22.5x. Given SGX Share Price’s 8% decline YTD, its valuation is attractive.
• SGX remains in a net cash position – with a monopoly over the trading of Singapore-listed equities – and the downside is deemed limited. Premised on these factors, we reiterate our BUY call.
• Global economic fluctuations and geopolitical developments are key risks. If the COVID-19 pandemic is prolonged, trading volume could experience a gradual decline from current high levels.

Source: RHB Invest Research - 3 Aug 2020