Date of Report: October 16, 2024
Broker Name: UOB Kay Hian
Company Overview
Singapore Exchange (SGX) is the owner and operator of Singapore’s securities and derivatives exchange, along with related clearing houses. It provides ancillary securities processing and information technology services to financial sector participants. SGX is recognized for its integral role in the financial market ecosystem.
Stock Data
- Share Price (as of report date): S$11.71
- Target Price: S$11.83 (previously S$11.62)
- Upside Potential: +1.0%
- Market Capitalization: S$12.54 billion (US$9.58 billion)
- GICS Sector: Financials
- Bloomberg Ticker: SGX SP
- Shares Issued: 1,070.8 million
- 52-Week High/Low: S$11.85/S$8.87
- 3-Month Average Daily Turnover: US$22.6 million
September 2024 Performance
Securities Daily Average Value (SDAV)
In September 2024, SGX reported a sharp increase in its SDAV to S$1.44 billion, representing a 66.9% year-on-year (YoY) and 5.6% month-on-month (MoM) increase. This marked the highest SDAV since May 2022. This surge was largely driven by increased trading activity in SGX-listed China-linked companies, following China’s stimulus measures, and strong performance in the financial and telecommunications sectors. The upcoming US elections and uncertainties around US Federal Reserve interest rate policy are expected to sustain this elevated trading velocity.
Derivatives Daily Average Volume (DDAV)
SGX saw its derivatives trading volume rise to a four-year high in September 2024, with DDAV surging 35.2% YoY and 28.0% MoM. Equity index futures volumes were at the forefront, driven by the FTSE China A50 Index Futures, which saw an extraordinary increase of 59.8% YoY. Other indexes like FTSE Taiwan and MSCI Singapore futures also contributed to the growth, despite some showing slight MoM declines. SGX expects continued growth in equity derivatives volumes for FY25, supported by global economic uncertainty.
Fixed Income, Currencies, and Commodities (FICC)
The FICC segment performed exceptionally well in September 2024. Forex volumes were up 34.8% YoY, while commodities trading, led by iron ore and SGX SICOM rubber futures, saw a 29.1% YoY rise. The strong performance in the forex segment was driven by key currency pairs, such as USD/CNH and KRW/USD.
Key Financials (FY24-FY27 Forecasts)
- Net Turnover: Expected to grow from S$1.23 billion in FY24 to S$1.44 billion by FY27.
- EBITDA: Predicted to rise from S$702 million in FY24 to S$823 million by FY27.
- Operating Profit: Expected to grow from S$606 million in FY24 to S$723 million in FY27.
- Net Profit (Adjusted): Estimated at S$526 million for FY24, rising to S$612 million by FY27.
- Earnings per Share (EPS): Forecasted to grow from 48.0 Singapore cents in FY24 to 55.9 Singapore cents by FY27.
Analyst View and Valuation
UOB Kay Hian maintains a HOLD recommendation on SGX with a revised target price of S$11.83 (up from S$11.62), reflecting a 22x price-to-earnings (PE) multiple on FY25 earnings. The analysts acknowledge SGX’s resilient business model, which benefits from global economic uncertainties, but they caution that there are no significant near-term catalysts to drive a higher valuation.
Despite the lackluster dividend yield of approximately 3.1%, SGX is favored for its stability and consistent performance, especially during periods of market volatility. However, the recommendation is to wait for better entry points given its current valuation.
Monetary Authority of Singapore (MAS) Review Group
The Monetary Authority of Singapore (MAS) has set up a review group to assess and strengthen Singapore’s equities market. Key areas of focus include attracting quality domestic and regional companies to list on SGX, improving market liquidity, expanding equity market derivatives, and streamlining regulatory structures, particularly for initial public offerings (IPOs).
Key Risks and Potential Catalysts
- Risks: Lack of near-term catalysts could limit upside potential in SGX’s stock price.
- Catalysts: Prolonged market volatility and stronger-than-expected SDAV and DDAV figures could serve as catalysts for earnings growth. Additionally, any earnings-accretive acquisitions could provide further upside to the stock.
Earnings Revision and Forecast Adjustments
Based on stronger SDAV and equity derivatives assumptions, UOB Kay Hian has increased its FY25-27 profit after tax and minority interest (PATMI) forecasts by 1-2%. The revised PATMI estimates are S$575.3 million for FY25 (up from S$565.1 million), S$595.3 million for FY26, and S$612.4 million for FY27.
