The downgrade comes after the exchange’s share price outperformance, which Tan attributes to its robust derivative volumes recorded in August.

Shares in SGX closed at $9.95 on Sept 20, nearly reaching its 52-week high price of $9.98.

SGX’s earnings for the FY2023 ended June 30 also beat Tan’s expectations due to its treasury income. However, due to its higher share price, the exchange’s “muted dividends growth” drove its yield closer to 3.5% or -1 standard deviation of its historical range.

In his report dated Sept 20, Tan notes that there may be downside risks as market watchers are expecting to see a “sharply higher” final dividend per share (DPS) for the FY2024.

According to Tan, the consensus is pencilling in a total dividend of 35 cents per share in FY2024 and 36 cents per share in FY2025. This implies a quarterly dividend of 9.5 cents from 8.5 cents previously in the 4QFY2024.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/rex-international-holdings-yumna-asset-continues-underperform?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Rex International Holding’s Yumna asset continues to underperform</a>

“While we lift our FY2024/FY2025 earnings by 4% - 7%, these are driven by treasury income that should not lead to higher dividends,” Tan writes.

Based on SGX’s latest market stats as at Sept 19, derivative volumes looked weaker on a m-o-m basis driven by A50, TW, SG and iron ore contracts, while SGX’s securities daily average value (SDAV) also looked softer.

To this end, Tan is forecasting SGX’s total SDAV for the FY2024 to come in at $1.08 billion and derivatives daily average volume (DDAV) at 1.035 million contracts.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/brokers-calls/rhb-upgrades-frencken-buy-new-tp-145?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>RHB upgrades Frencken to ‘buy’ with new TP of $1.45</a>

“With modest earnings per share (EPS) growth alongside muted DPS upside, we think recent share price outperformance presents an opportunity for investors to take profits,” he adds.

The revised target price implies a valuation of 19x SGX’s FY2024 P/E versus a 3.8% target yield assuming stable dividends.

Shares in SGX closed 1 cent higher or 0.1% up at $9.95 on Sept 20.

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