SGX kept at 'buy' by RHB as derivatives volume numbers remain strong

SGX kept at 'buy' by RHB as derivatives volume numbers remain strong

Samantha Chiew
08/04/19, 11:08 am

SINGAPORE (Apr 8): RHB Securities continues to rate Singapore Exchange (SGX) a “buy”, albeit with a lower target price of $8.10 from $8.20 previously.

In 3Q19, SGX’s securities average daily value (SADV) declined 31% y-o-y to about $0.97 billion.

In a Friday report, analyst Leng Seng Choons says, “We lowered our FY19 SADV to $1.04 billion from $1.07 billion, which is slightly above the 9M19 SADV of $0.99 billion. Our FY20 SADV assumption has been lowered to $1.12 billion from $1.29 billion – we expect global stabilisation to drive FY20F SADV higher y-o-y.”

Meanwhile, derivatives volume numbers have been robust lately, with the China A50 Index Futures’ Jan-Feb 2019 contracts traded increasing 8% y-o-y.

The analyst believes that market volatility will keep derivatives volume firm and has conservatively assumed FY19 derivatives average daily contract (DADC) of 924,000, higher than FY18’s 795,000. But Leng has assumed lower y-o-y FY20 DADC on expectations of slower China A50 Index Futures trading with HKEx’s expected launch of the MSCI China A Index Futures.

On Apr 1, Bloomberg reported that the National Stock Exchange of India (NSE) and SGX have finalised an agreement to trade Nifty products, which Leng believes reduces uncertainty, but will still be waiting for more details from SGX to provide “some feel on earnings impact”.

In addition, SGX is on track to meet the RHB’s DPS target of 31 cents for FY19, which translates to a yield of 4%, higher than the Singapore sovereign 10-year yield of 2.08%.

As at 11.05am, shares in SGX are trading 4 cents lower at $7.40 or 7.0 times FY19 book with a dividend yield of 4.1%.

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