Company Highlights
The focus of this investment report is on Singapore Exchange (SGX). The company is experiencing heightened trading volumes, with a positive outlook on its stock performance driven by various financial factors.

Investment Recommendation
The broker’s recommendation is to Hold SGX shares. The target price is set at S$12.50, and the current price stands at S$11.76. This provides an upside potential of approximately 6.3%.

Investment Thesis
The investment thesis for SGX revolves around anticipated growth in trading volumes and sustained performance in key areas such as derivatives, currencies, and commodities trading. With market expectations now factoring in a sustained increase in the Securities Daily Average Value (SDAV) to S$1.3 billion, this sets SGX on a path for potential re-rating. The previous rate cuts by the US Federal Reserve during 2019-2020 led to a significant boost in trading volumes, and a similar pattern is expected as the market looks ahead to future rate cuts.

SGX’s SDAV surged to S$1.37 billion in August 2024, marking a noticeable improvement from the S$1.2 billion average in the early months of 2024. Furthermore, SGX has shown stronger performance in revenue streams from commodities and currencies. The firm is also benefiting from hedging demand driven by uncertainty in global interest rates, especially in the US.

However, despite the positive outlook, downside risks include a potential decrease in treasury income due to further interest rate cuts, which could offset gains from increased trading volumes.

Detailed Company Analysis

1. Financial Results:
   SGX’s revenue has been growing steadily, with S$1.232 billion in FY24 and a forecast of S$1.271 billion in FY25. Operating EBITDA for FY24 was S$702.2 million, and net profit is projected to increase modestly from S$525.2 million in FY24 to S$537.2 million in FY25.

2. Stock Impact:
   The stock has rallied by 10% since August 2024 as investors have priced in stronger trading volumes and future interest rate cuts. SGX’s forward price-to-earnings (P/E) ratio is estimated at 24x for FY25F, with potential for upward revision if trading volumes continue to grow.

3. Earnings Revisions and Risks:
   The company’s earnings estimates have been maintained, with no changes to EPS forecasts. However, the downside risk comes from a more drastic than expected reduction in interest rates, which could reduce SGX’s treasury income.

4. Valuation:
   SGX’s valuation is pegged to a 25x CY25F P/E, which is 1 standard deviation above its 10-year average. The target price is revised to S$12.50, reflecting the stronger operational outlook. This target is set based on improved revenues from non-equity products and a relatively stable outlook for trading volumes.

5. Share Price Catalysts:
   Catalysts for SGX’s share price include continued rate cuts by the US Federal Reserve, which could lead to sustained increases in trading and hedging volumes. Additionally, positive news regarding regulatory changes in Singapore’s financial markets may further spur market activity.

Financial Targets

• Target Price: S$12.50
• Stop-Loss Price: Not explicitly provided in the report.

Recommendation Date
This investment recommendation is based on the report issued on September 11, 2024.

Broker Information
This report was issued by CGS International Securities.