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RHB lifts SGX’s TP to $10.40 after strong operating data in May

Felicia Tan
Felicia Tan • 3 min read
RHB lifts SGX’s TP to $10.40 after strong operating data in May
Analyst Shekhar Jaiswal has kept his "neutral" call as he sees limited upside in the near term. Photo: Albert Chua/The Edge Singapore
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RHB Bank Singapore analyst Shekhar Jaiswal has lifted his target price on the Singapore Exchange S68 -

(SGX) Group to $10.40 from $10 after the group reported strong operating data for the month of May, a continuation seen since February this year.

“Securities daily average value (SDAV) averaged at [around] $1.2 billion since February versus $0.9 billion during July 2023 [to] January 2024,” says Jaiswal in his June 11 report.

He adds that since his last report on May 20, he has noted that SDAV could remain elevated in the near term due to the rebalancing of the indices. On May 16, the MSCI Singapore index removed five Singapore-listed stocks, City Developments Limited C09 -

(CDL), Jardine Cycle & Carriage C07 - , Mapletree Logistics Trust M44U - (MLT), Mapletree Pan Asia Commercial Trust N2IU - (MPACT) and Seatrium. After the removal, which took place on May 31, only 16 SGX-listed stocks will remain.

In May, SDAV stood at $1.27 billion, 22% higher y-o-y and 5% higher m-o-m. The total market turnover value rose by 16% y-o-y and 5% m-o-m to $26.7 billion. Both monthly data points were the highest for the FY2024 ending June so far.

“Although year-to-date (ytd) SDAV for FY2024 is down 4% y-o-y from the data for the same period last year, the recent strength means that the implied SDAV for 2HFY2024 came in 3.6% ahead of our estimates,” notes Jaiswal.

Accordingly, the analyst has increased his SDAV estimate for the 2HFY2024 by 3.4%. He also estimates that the SDAV will increase by 5% each year in FY2025 to FY2026.

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SGX’s derivatives business also remained strong with the derivatives daily average volume (DDAV) ytd up 8% y-o-y.

Derivative volume rose by 17% y-o-y in May to 23.9 million contracts while DDAV was up by 22% y-o-y to 1.14 million contracts.

“Based on data for the January - May 2024 period, the implied DDAV for 2HFY2024 is 1.3% ahead of our estimates,” says Jaiswal.

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“The positive surprises came from FX and commodity derivatives,” he adds, noting that China’s introduction of fiscal stimulus measures and India’s general elections translated into record high open interest across SGX’s key equity, foreign exchange (forex), and commodity derivatives.

The analyst has also increased his DDAV estimates for the 2HFY2024 by 1.3% and sees that the DDAV will increase by 6% per year in FY2025 to FY2026.

He is also positive on SGX’s earnings, raising his FY2024 to FY2026 estimates by 1.4% each and rolls his valuation basis forward to FY2025.

Despite the increase in his estimates, Jaiswal notes that his FY2024 to FY2026 profit estimate still remains below the consensus’ expectations.

To this end, the analyst is remaining “neutral” on SGX.

“We continue to value SGX based on 21 times [its] forward P/E, which is in line with its historical average… Our target price includes a 6% environmental, social and governance (ESG) premium to its fair value of $9.80,” he writes.

“We see limited upside in the near term amidst a lack of catalysts, as the potential increases in SDAV and DDAV seem to be already priced in. SGX’s forward yield of 3.7% remains unexciting compared to the market yield of 5.5%, despite SGX’s plans to boost dividends by a mid-single-digit percentage in the medium term,” he adds.

As at 11.02am, shares in SGX are trading 8 cents higher or 0.84% up at $9.61.

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