Rising Global Volatility Could Drive Inflection

• Singapore Exchange (SGX, SGX:S68)’s 1H22 PAT missed MIBG expectations, but was in-line with Street.
• SGX’s derivatives, FX and commodities segments are delivering growth. Rising global uncertainty from rate hikes, Chinese domestic policy, inflation as well as regional re-opening should drive upside to volumes for SGX’s risk management solutions going forward, in our view.
• Singapore’s increased relevance as a value-oriented investment destination should drive an inflection in performance, we believe.

Underlying Business Delivering Growth

• SGX missed largely on weaker than expected treasury income. This typically contributes around 9% of revenues, but in 1H22, it was 3%. Lower yields were to blame and re-pricing could take 6-9 months despite higher rate expectations going forward, according to Management.
• On the other hand, we note higher volumes in fixed income, FX, commodity derivatives as well as equity derivatives. Despite a competing product on the China A50 index futures introduced by HKEX (388 HK) in Oct, income here expanded 10% Oct-Dec, according to Management, signifying the Group’s strong risk management offering.

Volatility, Re-opening Positive Catalysts

• Increased uncertainty from monetary tightening, the execution of China’s common fees going forward, in our view.

Lower Target Price for SGX But Upgrade to BUY

• Weaker treasury income and lower equity clearing fees (-2% y-o-y from higher market maker participation), sees us reducing FY22-24E PAT trade at 30x FY22E P/E, still 9% cheaper than ASX, which is another largely value-oriented exchange.

Source: Maybank Kim Eng Research - 6 Feb 2022