Singapore Exchange (SGX) Stock Analysis: Downgrade to Hold – Fair Value, Risks, and Outlook

OCBC Investment Research Private Limited

28 April 2025

Singapore Exchange (SGX): Downgraded to Hold Amidst Valuation Concerns After Recent Price Surge

Investment Overview of Singapore Exchange Ltd (SGX)

Singapore Exchange Ltd (SGX), a multi-asset exchange, offers a range of services including listing, trading, clearing, settlement, depository, data, and index services across equities, fixed income, currencies, and commodities. SGX aims to provide global investors with multiple growth opportunities through a trusted ecosystem, focusing on Asian equity derivatives and iron ore derivatives. [[1]]

Financial Performance and Growth Targets

• In FY24 (ending June 30, 2024), SGX’s core PATMI increased by 4.5% to SGD 525.9 million.
• Total declared dividends rose by 6.2% year-over-year to 34.5 Singapore cents per share. [[1]]
• 1HFY25 results showed an accelerated core PATMI growth of 27.3% year-over-year. [[1]]
• Management targets a medium-term revenue CAGR of 6-8% (excluding treasury income) and aims to increase DPS by a mid-single-digit CAGR, contingent on earnings growth. [[1]]

Rating Downgrade: From Buy to Hold

• SGX’s share price has increased by 18.5% since the upgrade to ‘Buy’ on April 10, 2025. [[1]]
• The total value of shares traded on the Singapore Exchange has been robust. [[1]]
• Fair value estimate increased to SGD 14.78, but rating downgraded to ‘Hold’ due to valuation. [[1]]

Key Observations and Analysis

• Share Price Rebound: Since the upgrade to ‘Buy’ on April 10, 2025, SGX’s share price has rebounded strongly, driven by expectations of benefiting from higher trading volumes and a previous share price pullback. [[1]]-[[2]]
• Trading Volume Surge: The total value of shares traded on the Singapore Exchange reached SGD 36.5 billion month-to-date as of April 25, 2025, exceeding the entire April 2024 figure of SGD 25.2 billion. [[2]]
• Daily Trading Activity: Average daily trading values for April (up to April 25) were SGD 2.03 billion, significantly higher than previous months and the same period last year. [[2]]
  • Apr 2025: SGD 2.03b (up till 25 Apr)
  • Mar 2025: SGD 1.47b
  • Feb 2025: SGD 1.47b
  • Jan 2025: SGD 1.03b [[2]]
• Fair Value Adjustment: FY25 and FY26 core earnings per share forecasts increased by 2.0%, with the target P/E multiple raised from 23.0x to 23.6x, reflecting a premium over SGX’s 10-year average forward P/E multiple. [[2]]
• Revised Fair Value: Fair value estimate lifted from SGD 14.09 to SGD 14.78. [[2]]
• Rating Downgrade: Despite the higher fair value, limited upside potential leads to a downgrade to ‘Hold’ based on valuation concerns. [[2]]

ESG Updates

• Consistent ESG Rating: SGX’s ESG rating has been consistently maintained over the past three years, with strong performance in the Environment and Governance pillars. [[2]]
• Environmental Performance: 100% of revenue is derived from less carbon-intensive business lines compared to peers, and carbon intensity is 5% below the industry average. [[2]]
• Corporate Governance: SGX has an independent majority board, separate CEO and Chairman roles, and independent key committees. [[2]]
• Business Ethics: SGX’s business ethics practices are above the average of its global peers, supported by a detailed anti-corruption policy with executive-level oversight. [[2]]
• Staff Turnover: The three-year (2020-2022) average staff turnover rate was higher than the industry average. [[2]]

Potential Catalysts for SGX

• Better-than-expected revenue growth from expansion in non-equities segments. [[3]]
• Lower-than-expected impact from HKEX’s MSCI A50 contracts. [[3]]
• Synergies from strategic acquisitions, product development, internal restructuring, or alliances with other exchanges. [[3]]
• Tighter cost controls. [[3]]
• Higher turnover and improved cash equity and derivative volumes. [[3]]
• Stronger FICC growth momentum and increased risk appetite. [[3]]
• Dividend surprise. [[3]]
• Faster traction on strategic cooperation with CITIC Securities. [[3]]

Investment Risks

• Weaker-than-expected trading volumes due to lowered risk appetite and market liquidity. [[3]]
• Regional competitive pressures and cost inflation. [[3]]
• Fee pressures and market share loss. [[3]]
• Mergers & acquisitions risk. [[3]]
• Trading disruptions and technological hiccups. [[3]]
• Higher compliance and regulatory costs. [[3]]
• Competition risks to China FTSE A50 trading income. [[3]]

Valuation Analysis

Comparative valuation metrics for SGX against its peers:

• Price/Earnings: SGX is at 24.7x for FY25E and 24.1x for FY26E. [[3]]-[[4]]
• Price/Book: SGX is at 7.2x for FY25E and 6.5x for FY26E. [[3]]-[[4]]
• EV/EBITDA: SGX is at 18.2x for FY25E and 17.7x for FY26E. [[3]]-[[4]]
• Dividend Yield (%): SGX is at 2.6% for FY25E and 2.7% for FY26E. [[3]]-[[4]]
• ROE (%): SGX is at 30.6% for FY25E and 28.4% for FY26E. [[3]]-[[4]]

Peer Comparison

• Hong Kong Exchanges and Clearing Ltd (0388.HK): [[3]]-[[4]]
  • P/E: 29.5x (FY25E), 28.7x (FY26E)
  • P/B: 7.9x (FY25E), 7.7x (FY26E)
  • EV/EBITDA: 17.3x (FY25E), 16.8x (FY26E)
  • Dividend Yield: 3.0% (FY25E), 3.1% (FY26E)
  • ROE: 26.7% (FY25E), 26.6% (FY26E)
• ASX LTD (ASX.AX): [[3]]-[[4]]
  • P/E: 27.0x (FY25E), 26.5x (FY26E)
  • P/B: 3.6x (FY25E), 3.5x (FY26E)
  • EV/EBITDA: 1.6x (FY25E), 1.5x (FY26E)
  • Dividend Yield: 3.1% (FY25E), 3.2% (FY26E)
  • ROE: 13.4% (FY25E), 13.4% (FY26E)
• BURSA MALAYSIA BHD (BMYS.KL): [[3]]-[[4]]
  • P/E: 21.0x (FY25E), 20.5x (FY26E)
  • P/B: 7.0x (FY25E), 6.7x (FY26E)
  • EV/EBITDA: 5.6x (FY25E), 5.4x (FY26E)
  • Dividend Yield: 4.5% (FY25E), 4.7% (FY26E)
  • ROE: 34.1% (FY25E), 34.8% (FY26E)
• JAPAN EXCHANGE GROUP INC (8697.T): [[3]]-[[4]]
  • P/E: 26.6x (FY25E), 25.7x (FY26E)
  • P/B: 4.8x (FY25E), 4.5x (FY26E)
  • EV/EBITDA: 13.7x (FY25E), 13.1x (FY26E)
  • Dividend Yield: 2.8% (FY25E), 2.5% (FY26E)
  • ROE: 17.5% (FY25E), 16.9% (FY26E)

Company Overview (as of June 30, 2024)

SGX Group aims to be a trusted international marketplace, operating equity, fixed income, currency, and commodity markets under high regulatory standards. It offers listing, trading, clearing, settlement, depository, data, and index services. SGX is committed to climate action through SGX FIRST (Future in Reshaping Sustainability Together). [[4]]

FY24 Operating Revenue Breakdown

• Equities – Cash: 27.2% [[4]]
• Equities – Derivatives: 27.1% [[4]]
• Fixed Income, Currencies and Commodities: 26.2% [[4]]
• Platform and Others: 19.5% [[4]]

FY24 Operating Profit Breakdown

• Equities – Cash: 29.6% [[4]]-[[5]]
• Equities – Derivatives: 33.7% [[4]]-[[5]]
• Fixed Income, Currencies and Commodities: 19.0% [[4]]-[[5]]
• Platform and Others: 17.8% [[4]]-[[5]]

Core PATMI Trend (SGD m)

• FY17: 340 [[5]]
• FY18: 363 [[5]]
• FY19: 393 [[5]]
• FY20: 472 [[5]]
• FY21: 445 [[5]]
• FY22: 456 [[5]]
• FY23: 503 [[5]]
• FY24: 526 [[5]]

Dividend per share (S cents)

• FY17: 28.0 [[5]]
• FY18: 30.0 [[5]]
• FY19: 30.0 [[5]]
• FY20: 30.5 [[5]]
• FY21: 32.0 [[5]]
• FY22: 32.0 [[5]]
• FY23: 32.5 [[5]]
• FY24: 34.5 [[5]]

Company Financials

Income Statement (In Millions of SGD except Per Share)

Profitability Ratios

Credit Ratios

Analyst Declaration [[6]]

The analyst(s) who prepared this report certifies that the opinions contained herein accurately and exclusively reflect his or her views about the securities of the listed entity, and that he or she has taken reasonable care to maintain independence and objectivity in respect of the opinions herein.