Singapore Exchange SGX: S68 - Continued SADV Robustness a Catalyst; Upgrade to BUY
- In this report, we raised Singapore Exchange’s assumed FY21 securities average daily value (SADV) by 15% to SGD1.32bn, given the recent weeks’ SADV strength. We believe the economic recovery from COVID-19 could give rise to more volatility in the equities market and hence increase trading.
- Upgrade to BUY from Neutral, with new SGD9.20 Target Price from SGD8.60, 15% upside, supported by 4% FY21F (Jun) yield.
- Our Target Price is pegged to 24x FY21F EPS.
Robust 4QFY20 SADV Led to Our Increase in FY21F SADV
- SGX (SGX:S68)'s 4QFY20 SADV was SGD1.57bn, based on data until the third week of June. Jun 2020 SADV was SGD1.86bn (based on data for the first three weeks). Our FY20 SADV expectation is SGD1.29bn, due to weakness in 1HFY20 offsetting 2HFY20’s strength.
- We raised our SGX's FY21F SADV assumption by 15% to SGD1.32bn, as the gradual resumption of economic activities is expected to contribute to more volatility and hence increase the trading of equities.
Derivatives Trading Seen to Slow in FY21
- This is due to the reduction of licence agreements with MSCI from Feb 2021 onwards – although the partnership on MSCI Singapore Index products is to be retained. The affected MSCI contracts account for 15% of equity derivatives average daily contracts (DADC) and 12% of total DADC – the latter includes currencies and commodities.
We Raise FY21F Net Profit by 6%
- We raise SGX's FY21F net profit by 6% to SGD415m, due to the increase in FY21F SADV. However, our FY21F net profit is lower y-o-y due to the expected y-o-y fall in DADC.
Respectable Dividend Yield
- We forecast a FY20 DPS of 36 cents/share – giving a 4.5% dividend yield – based on an 85% payout ratio. However, we have assumed FY21 dividend of a lower 33 cents/share.
Our SGD9.20 Target Price Is Pegged to 24x FY21F EPS
- Our SGD9.20 Target Price for SGX is pegged to 24x FY21F EPS, ie 1SD above the 4-year mean of 22.5x. The sharp 19% 1-month decline in SGX phare price has already factored in the negative news flow on MSCI contracts.
- SGX remains in a net cash position – with a monopoly over the trading of Singapore-listed equities – and downside is seen as limited.
- Global economic fluctuations and geopolitical developments are key risks. If the COVID-19 pandemic is prolonged, trading volumes could experience a gradual decline from current high levels.
Source: RHB Invest Research - 25 Jun 2020