• NEUTRAL, new SGD9.90 TP from SGD9.80, 5% upside with c.3% FY24 (Jun) yield. FY23 market statistics disappointed, as securities daily average value (SDAV) and derivatives daily average volume (DDAV) were 2% and 4% below our forecasts – both declined QoQ and YoY in 4QFY23. We update our financial model for the reported statistics and trim FY23- 25F earnings by 3-4%. We still maintain our below-consensus forecasts, and reiterate our weak outlook for Singapore Exchange’s cash equities business. Its forward P/E is at the historical meman, ie fairly valued.

• Securities volume fell YoY for six consecutive months, but SDAV improved in June. SDAV climbed 14% MoM in June to SGD1.2bn, up 2% YoY, while total securities market turnover value was 3% higher MoM at SGD23.7bn. The Straits Times Index (STI) advanced 1.5% in June. In Jan-Jun 2023, reinvested dividends boosted the STI’s total return to 1.2%. For FY23, both securities turnover and SDAV disappointed, with a YoY declines of 14% and 13%. Pasture Holdings, a pharmaceutical company, joined the Catalist board in June. SGX-listed companies raised SGD289.8m of secondary equity funds in June. From January to June as well, secondary fundraising totalled SGD2.4bn (+91% YoY).

• DDAV improved MoM in June. Total derivatives traded volume across multiple asset classes climbed 4% MoM (-9% YoY) in June to 21.3m contracts, the highest in three months. The DDAV also jumped 15% MoM (flat YoY). For FY23, derivatives volume and DDAV increased by 1% and 2%. On SGX Equity Derivatives, equity index futures traded volume gained 2% MoM to 13.6m contracts. As part of efforts to mobilise capital towards the climate transition, SGX Equity Derivatives in June launched five futures contracts based on the MSCI Climate Action Indexes. FX futures traded volume increased 12% MoM in June to 3.3m contracts. Commodity derivatives traded volume rose 35% YoY in June to 3.9m contracts, with iron ore volume up 36% YoY.

• Share price has outperformed the STI, but company lacks near-term catalysts. Amidst the relatively defensive nature of its earnings, YTD, SGX’s share price has outperformed the STI by 7%. However, this brings its forward P/E in line with its historical P/E mean of c.22x. While SGX’s non-cash equity businesses (ie the fixed income, currencies & commodities and equity derivatives business) are key long-term growth drivers, we continue to maintain our below-Street FY24F earnings for now. SGX’s stock offers a dismal 3.4% forward dividend yield. We value the stock by applying a 22x P/E on its FY24F EPS. Our TP includes an 8% ESG premium to its SGD9.20 FV, as SGX’s ESG score is four notches above the country median.

Source: RHB Research - 14 Jul 2023