SINGAPORE (June 22): RHB Research is keeping its “buy” call on Singapore Exchange (SGX) with an unchanged target price of $9.00, on the back of a bullish outlook for the bourse’s securities trading volume.

“Global news flow on US-China trade tensions and US Fed rate hikes could stimulate trading,” says analyst Leng Seng Choon in a Friday report. The way he sees it, such developments “could stimulate investors to switch their stock holdings and in turn generate stronger trading volumes.”

As such, Leng forecasts that SGX’s securities average daily value (SADV) could rise to $1.39 billion in FY19, from SADV of $1.23 billion so far this year.

Meanwhile, the analyst brushes aside the potential impact of SGX’s ongoing rift with the National Stock Exchange of India’s India Index Services & Products Limited (IISL).

<hr/><a href="https://www.theedgesingapore.com/sued-india-exchange-futures-dispute" target="_blank">See: SGX sued by India Exchange in futures dispute</a><hr/>

“There is derivatives revenue risk from ongoing arbitration proceedings between SGX and IISL but the impact is expected to be relatively small as SGX Nifty 50 Index Futures accounts for only 11% of SGX’s derivatives traded volume,” says Leng.

Furthermore, he notes that SGX last week announced that it has been granted an extension for its licence to continue listing and trading of SGX Nifty contracts beyond Aug 2018, as part of the ongoing arbitration proceedings.

Leng opines that SGX’s strong earnings growth and balance sheet would carry it through the challenges.

“We are forecasting FY19 net profit growth of 9.7%. SGX is in a net cash position and has a monopoly over the trading of Singapore equities,” he says. “Dividend yield is high at 4.3%, higher than the Singapore sovereign 10-year bond yield of 2.57%.”

As at 3.11pm, shares of SGX are trading 8 cents lower at $7.17, implying an estimated price-to-earnings ratio of 19 times for FY19.

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