Singapore Exchange’s (SGX) cash equities business came in below expectations for the three quarters ended September, historically quieter month for equities trading in Singapore. RHB Bank Singapore analyst Shekhar Jaiswal says SGX’s securities turnover and securities daily average value (SDAV) are running “well below estimates”, but keeps his outlook unchanged for now.
In an Oct 20 note, Jaiswal is staying “neutral” on SGX with an unchanged target price of $10.30, which includes an 8% environmental, social and governance (ESG) premium, based on RHB’s in-house methodology.
“While we keep our estimates unchanged for now, we have included sensitivity analysis for investors to assess the downside to earnings and target price in case the current weakness in market data persists for the rest of the year,” writes Jaiswal. “Macroeconomic uncertainty will continue to weigh on cash equity trading volume, and a dip in treasury income is expected in 2024 amid an eventual fall in interest rates.”
In line with the decline in global stock markets during the month of September, SGX’s securities total market turnover for the month fell 33% y-o-y and 26% m-o-m to $17.3 billion, while the SDAV declined 26% y-o-y and 19% m-o-m to $0.87 billion.
This was the lowest monthly SDAV since December 2018, notes Jaiswal. The Straits Times Index (STI) dropped 0.5% m-o-m in September. For 1QFY2024 ended September, both SGX’s market turnover and SDAV fell.
The year-to-date securities market turnover value and SDAV for FY2024 ended June 2024 are tracking 8% and 7% below the numbers for the same period in FY2023. The implied FY2024 SDAV, based on data through September, is 13.7% below Jaiswal’s estimate.
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Sustained growth in derivatives
Global macroeconomic uncertainty relating to widening rate differentials and surging oil prices stimulated strong derivative trading activity for SGX in 1QFY2024, notes Jaiswal.
Derivatives traded volume fell 4% y-o-y and 9% m-o-m in September to 21.5 million contracts. Derivatives daily average volume (DDAV) came in at 1.07 million contracts, up 6% y-o-y and flat m-o-m, with broad-based gains across equities, foreign exchange and commodities.
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For 1QFY2024, derivatives traded volume came in at 65.6 million contracts, up 10% y-o-y and up 4% m-o-m, and DDAV came in at 1.04 million, up 7% y-o-y and up 6% m-o-m.
Year-to-date derivatives traded volumes and DDAV for FY2024 are tracking 4% and 6% above the same period in FY2023. The implied FY2024F DDAV, based on data through September, is in line with Jaiswal’s estimate.
No near-term catalysts
Jaiswal says SGX’s longer-term growth factor is intact, but there are no near-term catalysts. “We continue to believe that fixed income, currencies and commodities (FICC) will remain key growth drivers for SGX over the longer term. However, given the uncertain macroeconomic outlook and likelihood of an eventual decline in interest rates at some point in 2024, the near-term growth outlook could see downside risk.”
Despite factoring in a mid-single digit percentage growth in dividends, SGX’s yield is well below the market yield of 5.6%, he adds.
As at 2.02pm, shares in SGX are trading 16 cents lower, or 1.67% down, at $9.43.
