Shekhar Jaiswal of RHB has maintained his "neutral" call on Singapore Exchange but has lowered his target price to $8.60 from $9.40 as the latest operating data has come in lower than seen, implying that the exchange’s volume for the current year ending June 2023 will fall short.
The revised target price reflects lowered earnings estimates for the current FY2023 ending June 2023 to FY2025.
"While we expect growth to resume in FY24F, near term outlook for cash equities remains weak amid low market valuations and an uncertain macroeconomic outlook," writes Jaiswal in his March 14 note.
On March 13, the exchange reported that securities volume for February was down 33% versus February 2022, which implies that the volume for whole of FY2023 will be 2.6% below what Jaiswal was expecting.
The outlook isn’t too bright. “Although the STI has outperformed its regional peers, the index was down 3.1% in February amid concerns that the US Federal Reserve could keep interest rates higher for longer, thereby translating into slower economic growth,” he adds.
However, there was a bright spot. SGX’s derivatives business continues to register growth, with a total of 19.9 million contracts traded in February, up 7% y-o-y and 4% over January.
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According to SGX, the jump in trading volume was led by optimism over China’s reopening, thereby lifting trading activity across multiple asset classes, especially in commodities and FX.
Even so, the implied FY23F average daily value for derivatives for February was still 3.4% below RHB’s estimates.
With the combination of these factors, Jaiswal has lowered his target price amid a weak outlook and an “unexciting” yield of 3.7%. His revised FY2023 earnings, pegged to 20x earnings, is now 13% below consensus.
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“We maintain that SGX’s cash equity business will continue to underperform amidst decelerating global growth. Delays in major new equity listings amid low market valuation further lower the scope for a sharp increase in SDAV,” he writes.
SGX shares changed hands at $8.71 as at 2.50pm, up 0.93% for the day.
