RHB Bank Singapore analyst Shekhar Jaiswal is remaining “neutral” on Singapore Exchange S68 (SGX) with a lowered target price of $9.60 from $10.30 previously, as its operating data for the 1HFY2024 ended Dec 31, 2023, came in “well below” his estimates. Securities trading data stood 8% lower than Jaiswal’s estimates while derivatives tracking data stood within his expectations.
On Jan 12, SGX reported its market statistics for December 2023. The exchange’s securities daily average value (SDAV) stood at $951 million, up 2% y-o-y and steady m-o-m while its derivatives daily average volume (DDAV) rose by 13% y-o-y at over 1 million contracts. SGX’s derivatives traded volume rose by 6% y-o-y to 21.1 million contracts in December.
“While we mark to market (mtm) the weak 1HFY2024 SDAV data in our estimates, we maintain some optimism on 2HFY2024 SDAV amid improving economic growth outlook and some clarity on moderation in interest rate outlook spurring interest in Singapore REITs (S-REITs),” says Jaiswal in his Jan 16 report.
The mtm of SGX’s 1HFY2024 securities data subsequently resulted in Jaiswal lowering his earnings estimates for the FY2024 to FY2026 by 4% each.
“We also now ascribe a lower 6% environmental, social and governance (ESG) premium to SGX’s fair value as its ESG score of 3.4 is now only 3 points above the revised country median ESG score of 3.1,” he adds.
However, Jaiswal remains positive on SGX with the benchmark Straits Times Index (STI) outperforming in December.
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“Singapore’s equities market outperformed [its] Asean peers in December, with the STI advancing 5.4% m-o-m. Retail investors drove securities trading activity for a third consecutive month, with growth across segments including index stocks, REITs, as well as small- and mid-cap stocks,” the analyst writes. “SGX saw the listing of 17Live, the first de-spac (or special purpose acquisition company) in Singapore and major Asian markets.”
“We believe Singapore’s positive economic growth prognosis and the expectations around moderation in interest rates could bring investors back to Asia's highest-yielding market,” he adds.
At its present levels, SGX is trading in line with its historical average P/E, which Jaiswal deems to be “fair”.
Shares in SGX closed 1 cent higher or 0.1% up at $9.64 on Jan 17.
