SINGAPORE (Dec 4): RHB Research is maintaining its “buy” recommendation on Singapore Exchange given the higher number of recent IPOs and the projected increase in SADV (securities average daily value) in subsequent months.
RHB is forecasting an FY18 SADV of $1.2 billion. SGX recorded October and November SADV of $1.12 billion and $1.27 billion respectively, and the value for the combined two months is ahead of FY17’s $1.12 billion.
In a Monday report, RHB analyst Leng Seng Choon says the recent barrage of IPOs contributed to the strong November SADV of $1.27 billion.
For the first 11 months of 2017, there were 23 new listings on the SGX, including 19 IPOs. Funds raised by the 19 IPOs totalled $4.6 billion, which is double the $2.3 billion in fundraisings posted in 2016.
“We believe there ought to be continued momentum of equities trading following these IPOs,” says Leng.
Global developments such as the federal funds rate (FFR) hike in December – which is largely expected by market players — could also stimulate trading volumes.
“We forecast for an even stronger FY19 SADV of $1.39 billion,” adds Leng.
As for derivatives, even though the SGX FTSE China A50 Index trading volumes were lacklustre in October with daily average of 259,000 vs 1Q18’s 263,000, RHB sees potential for more trading of the China A50 Index futures. This is on the back of strong trading volumes on the HKEx equities market.
“We assume FY18 DADC of 758,000, and an even stronger FY19 DADC of 821,000,” says the analyst.
As for plans to accommodate a dual-class share structure, SGX recently said it could not ignore demand for such a structure, following Hong Kong’s announcement to go ahead with the change. However, it also said that this had to be weighed against investors’ interests. Further news flow on this aspect could impact future IPO listings on the SGX, says RHB.
Meantime, SGX offers an attractive FY18 dividend yield of 4.1% which is higher than Singapore Government’s 10-year bond yield of 2.13%.
“Based on our assumption of FY19 SADV of $1.39 billion, we keep our target price of $9.00 which is pegged to 24 times FY19 earnings,” says Leng.
As at 2.47pm, shares in SGX are down 3 cents at $7.52.
