• Singapore Exchange (SGX)’s derivatives platform continues to see support as investors look to mitigate and hedge risks in the current global environment. Its multi-asset strategy is a strong competitive advantage. This should continue to improve regional relevance.
• SGX’s sustainability disclosures are good based on MIBG’s ESG2.0 scoring. However, there is significant headroom for improvement. Increased transparency could drive larger ESG weightings for SGX going forward, in our view.
• Adjustments to market run rates and peer valuations sees us lowering target price for SGX to S$10.65.

Derivatives Support

• SGX's Aug 22 market statistics show futures volumes up +4% y-o-y and options +19%. SGX’s liquid contracts in FX, commodities and indices continue to provide a competitive moat in current market volatility. This is important, as derivatives-led, non-cash equities segment is set to deliver 58% of revenues in FY23 (~ 51% FY22).
• Singapore’s defensive equity market has held up better than global peers. Our derived market velocity for FY23 year-to-date at 29% - while lower than FY22 (36%) - is similar to pre-COVID FY17-19 levels. This should give some downside protection to the equities segment revenues going forward, in our view.

Good ESG Disclosures From SGX. Headroom for Improvement

• Under our enhanced ESG2.0 scoring, SGX receives a 56. This is above average, and the Group’s efforts in improving sustainability reporting & action in the financial sector (ESG disclosure portal, CIX carbon exchange etc.) are strong positives.
• However, improvements to quantitative disclosures in areas such as waste management and diversity (female workforce at 45% vs 49% in FY20) could drive a higher score, in our view. Refer to the report attached below for more details.
• Particular areas of note is in Board independence and female representation, where SGX’s proportions are significantly lower than HKEX (388 HK).

Lower Target Price for SGX to S$10.65. Maintain BUY

• A stronger derivative outlook sees us raising FY23E EPS forecast for SGX by 3%, but listings uncertainty and new business integration expenses lowers FY24E by 3%. Our blended multi-stage DCF (WACC 7.2%, 1% terminal growth) and peer P/E (22x target – reduced from 26x) target price for SGX is lowered to S$10.65.

• We believe SGX’s multi-asset approach gives it a strong advantage during market uncertainty, while also increasing regional relevance. Improving sustainability disclosures should also drive bigger ESG weightings.

Source: Maybank Research - 6 Oct 2022