RHB Group Research analyst Shekhar Jaiswal maintains a ‘neutral’ rating on SGX, with a lower target price of $9.80 from $10.30, experiencing a 3% upside.
“While we are positive on Singapore Exchange’s long term growth prospects from its latest acquisitions and potential pipeline of new listings, soft securities daily average value (SDAV) for 1HFY2022 (June) and concerns related to rising competition and higher operating costs could mean that its earnings and share price would struggle to re-rate in the near-term,” Jaiswal says. “We lower FY2022-FY2024 by 4-5%.”
The analyst highlights that the target price includes an ESG premium of 8%.
Jaiswal posits some concerns for SGX in the near-term, such as an elevated operating cost profile for next the next 12-18 months as SGX looks to integrate and consolidate its recent acquisitions before revenue contributions from the acquisitions become visible, competition from Hong Kong Exchange’s MSCI China A50 Connect Index Futures to its FTSE China A50 Index Futures (accounts for approximately 40% of its derivatives market volume), y-t-d 5.4% lower-than-estimated derivatives daily average volume for FY22F, and concerns that a soft securities market turnover trend from its first six months of FY2022 could moderate further.
“However, we do remain cognisant of the upside risks to SDAV from the potential pipeline of ETF, REIT, and Special Purpose Acquisition Company (SPAC) listings,” he adds.
While the analyst remains constructive on the outlook for Singapore equities, Jaiswal believes greater visibility on the economic reopening could lead to lower uncertainty and hence, lower volatility as compared to what was witnessed in FY2020 and FY2021. “We lower our FY2022 SADV estimate by 8%. This leads to 4-5% reduction in our FY2022-FY2024 earnings as revenues dependent on the securities market turnover value account for approximately 30% of SGX’s revenue,” he says.
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SGX is trading at 23.3 times FY2022F P/E, which is quite close to +1 standard deviation from its historical average, according to the analyst. The stock offers a modest dividend yield of 3.4%, which is below the STI’s forward yield of 4.5%.
At 2:07pm, shares in SGX are trading at 4 cents lower or 0.42% down at $9.53.
