Maybank Securities, OCBC Investment Research (OIR) and PhillipCapital are the more positive brokerages, with unchanged “buy” calls as the group’s 1HFY2023 results stood in line with the street’s estimates.

SGX offers ‘strong competitive moat’: Maybank

Maybank’s Thilan Wickramasinghe notes that the group’s multi-asset derivative platform “continues to deliver and offers a strong competitive moat in the current volatile markets backdrop”.

During the six-month period, equity derivatives saw a strong performance with improved fees per contract.

Meanwhile, cash equities stood “uncertain” with the daily value traded falling 7% y-o-y to $1.1 billion. Clearing fees also fell by 3% y-o-y.

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While cash equities are seeing slower conditions, the analyst sees an improving outlook for listings going into the FY2024 with management being “sanguine” on an improved listing pipeline compared to 2HFY2022.

“However, this may see momentum only in FY2024,” he adds.

To him, operating expenses (opex) management is key for driving return on equities (ROEs) for the group.

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“Costs expanded 10% y-o-y, but if the integration of MaxxTrader is excluded, opex would have grown only 6%. Execution on integrating new acquisitions remain critical in keeping cost surprises under control, in our view,” says Wickramasinghe.

Following the group’s results, the analyst has changed his earnings estimates for the FY2023 to FY2025 by -1% to +1%.

His target price, which is raised to $10.73 from $10.65 previously, based on a blended multi-stage discounted cash flow (DCF) model that includes a weighted average cost of capital (WACC) of 7.2% and a terminal growth of 1%. The target price also includes a peer P/E of 24x, up from 23x based on its latest peer valuations.

“Our target price P/E of 24x is below Hong Kong Exchange’s (HKEX) [P/E] of 43x,” says Wickramasinghe.

“We believe SGX’s multi-asset risk management platform offers a unique value proposition amidst regional and global volatility,” he adds.

SGX needs time to executive on plans, says OCBC

OIR’s research team is also keeping its “buy” call with a lowered fair value estimate of $10.20. The figure implies a forward P/E ratio of 21.7x, just above its past five-year historical average multiple of 21x in view of its “stellar” environmental, social and governance (ESG) record, says the team.

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“SGX is rated for its ESG performance, which pegs the firm at the top end of its industry peers and is incorporated in our fair value via a valuation premium to its historical average multiple,” it adds.

In the team’s view, SGX needs time to execute on its plans even though the team is positive on the group’s various initiatives to broaden its revenue streams.

They add that they expect to see a “further ramp-up” of revenues from SGX’s recent bolt-on acquisitions.

That said, the team also notes near-term concerns for the group, which include the increased competition in the China A50 equity derivatives space and normalisation in capital market activities.

“SGX’s medium-term strategy is to advance its multi-asset exchange platform, widen its partnership network and grow its international presence, with the goal to increase diversification of its revenues,” says the OIR team.

Derivatives volume and fees are key catalysts for SGX, says PhillipCapital

PhillipCapital analyst Glenn Thum is keeping his “buy” call on SGX with an unchanged target price of $11.71 after SGX’s 1HFY2023 revenue and adjusted patmi met his estimates.

The analyst noted positives including the surge in treasury income and higher fees from its FTSE China A50 and Nifty 50 contracts and negatives such as the lower listing revenue, which hurt the group’s fixed income and cash businesses.

To Thum, catalysts include “continued growth from derivatives volumes and fees, and higher treasury income as the higher interest rates start to kick in”.

‘Hold’ onto SGX for the time being

Meanwhile, analysts from CGS-CIMB Research and RHB Group Research have kept their “hold” and “neutral” calls.

CGS-CIMB’s Andrea Choong has also kept her target price of $10 after SGX’s core net profit stood in line with her estimates, forming 50% of her full-year forecasts.

Following SGX’s interim distribution per share (DPS) of 8 cents in the half-year period, Choong is estimating the group a total DPS of 32 cents in the FY2023.

On SGX’s treasury income, Choong notes that any further increase will depend on various factors such as derivatives market activity and open interest (OI) on collateral.

“We understand that a flat or inversion in the yield curve would also affect this income line,” she says, adding that she has factored in a gradual step-up of treasury income in the 2HFY2023, which could account for around 10% of SGX’s revenue.

RHB Group Research analyst Shekhar Jaiswal has raised his target price on SGX to $9.40 from $9.30 after SGX’s core patmi came in higher than his estimates.

“We lift FY2024 to FY2025 profit by 2% each,” says Jaiswal. However, he maintains that the short-term outlook for cash equities amid an uncertain macroeconomic outlook.

“Low market valuations could further delay new listings. A pressured ebitda margin for FY2023-FY2024, a forward P/E that is level with the historical mean, and below-market dividend yield will remain a drag on the stock’s re-rating,” he adds.

Analysts are mixed on SGX after 1HFY2023 results

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