• While higher treasury income from US Federal Reserve (US Fed) rate hikes, as well as improved data, connectivity and indexes (DCI) and fixed income, currencies and commodities (FICC) revenue should support higher FY23F profit, SGX (SGX:S68)'s FY22F earnings could remain soft amidst higher cost growth and a weak cash equities turnover.
• While global macroeconomic uncertainties could lead to better-than-expected trading volumes, we note SGX is trading above the historical average P/E.
• NEUTRAL, new S$10.40 target price from S$10.00, 7% upside, as we roll forward our valuation basis to FY23F.

YTD FY22 Market Statistics Tracking Our Estimates

• SGX has seen a y-o-y decline in cash equities turnover over the last two months (March and April). The securities daily average value (SDAV) came in at S$1,554m (down 8% y-o-y) and S$1,271m (down 1% y-o-y) respectively in March and April. This brings the year-to-date SDAV to S$1,274m for FY22, which is ~5% higher than our FY22F SDAV of S$1,219m.
• SGX’s derivatives segment saw a sharp uptick in trading activity, with average daily trading volumes (DDAV) of 1.14m (+11% y-o-y) and 1.04 (+25% y-o-y) in March and April. Year-to-date DDAV is tracking ~2% below our FY22F estimates.

Our FY22 Estimates Are Above Consensus’

• We estimate SGX will report S$625m of EBITDA and S$447m of profit in FY22F. This is higher than the consensus estimates of S$608m and S$434m, respectively. As our revenue estimate is in line with consensus’, we believe Street may be factoring in higher operating costs for FY22F.

Source: RHB Invest Research - 26 May 2022