SINGAPORE (Jan 25): RHB Research is keeping its “buy” call on Singapore Exchange (SGX) with an unchanged target price of $8.20, on the back of strong growth in its derivatives business.
SGX on Thursday reported 2Q earnings of $97 million, 9% higher compared to a year ago.
Total revenue for 2Q rose 9% to $224 million from a year earlier, led by a 35% increase in derivatives revenue to $112.9 million.
See: SGX reports 9% rise in 2Q earnings to $97 million as derivatives business set record for second straight quarter
“We are bullish on derivatives volume numbers,” says analyst Leng Seng Choon in a report on Friday. “We believe market volatility will keep derivatives volume firm, though we have conservatively assumed FY19 derivatives average daily contract (DADC) of 897,000, versus 2Q19’s 938,000, and 1H19’s 900,000.”
The research house has cut SGX’s FY19 net profit forecast by 2%, on lower securities average daily value (SADV) assumption. SADV fell 14% to $0.98 billion in 2Q19.
However, RHB continues to favour SGX for its strong balance sheet and attractive yield.
“SGX remains in a net cash position, with a monopoly over trading of Singapore-listed equities,” Leng says.
“SGX is on track to hit our target 31 cents DPS for FY19 – which translates to a yield of 4%,” he adds. The board has declared an interim dividend of 7.5 cents per share, up from 5 cents last year.
Shares in SGX closed 7 cents higher at $7.57 on Friday.
