SGX tracking estimates, but RHB sees 'unexciting yield' ahead

Jovi Ho
Updated 3-min read

The uncertain macroeconomic environment and low market valuations are leading to delistings and will delay new listings, says RHB.

The Singapore Exchange’s (SGX) S68 9MFY2023 securities daily average value (SDAV) and derivatives daily average volume (DDAV) are largely tracking forecasts, says RHB Bank Singapore.

That said, the near-term outlook for cash equities remains weak, says RHB. The uncertain macroeconomic environment and low market valuations are leading to delistings and will delay new listings. “We believe SGX’s share price will remain range-bound and struggle to re-rate meaningfully.”

With “unexciting yield” but “fair valuation”, RHB analyst Shekhar Jaiswal is maintaining “neutral” on SGX in an April 14 note, with a higher target price of $9 from $8.60 previously.

The target price includes an ESG premium of 8% over its fair value of $8.30, based on RHB’s proprietary methodology.

The SDAV rose for two consecutive quarters q-o-q, but year-to-date numbers are down 12% y-o-y. This q-o-q improvement was driven by increased trading activity in the banking sector, the likely inclusion of Sembcorp Marine to the MSCI Singapore Index and growth in small and mid-cap stocks.

The Straits Times Index (STI) delivered positive returns for 1Q2023 at 0.8% total return, outperforming the FTSE ASEAN All-Share Index’s 0.3% gain.

Securities volume grew 27% m-o-m in March but declined y-o-y for 3QFY2023 and 9MFY2023.

For March, securities market turnover value came in at $27.9 billion, down 22% y-o-y and up 27% m-o-m, while the SDAV stood at $1.22 billion, down 22% y-o-y and up 10% m-o-m.

Meanwhile, SDAV for 3QFY2023 was up 5% q-o-q but down 21% y-o-y. Similarly, SDAV for 9M20FY23 was down 12% y-o-y.

The implied FY2023 SDAV, based on 9MFY2023, is 2.8% above Jaiswal’s estimate. FY2023 revenue is 4% below consensus forecasts amid lower SDAV assumptions. “We maintain that SGX could continue to see weakness in its cash equities business and maintain our below-consensus estimates.”

Derivatives business continues to grow

Optimism over China’s recovery, along with easing expectations for global interest rates to stay elevated drove trading activity.

In March, the total derivatives traded volume was 23.5 million contracts, down 11% y-o-y and up 17% m-o-m.

Meanwhile, DDAV amounted to 1.02 million, down 11% y-o-y and up 2% m-o-m.

DDAV for 3QFY2023 was down 3% y-o-y and for 1HFY2023 was down 6% y-o-y.

In March, equity index futures traded volume gained 14% mo-m to 14.9 million contracts, led by a 17% mo-mincrease in SGX Nifty 50 Index Futures.

FX futures traded volume rose 25% m-o-m to 3.7 million contracts.

SGX Commodities recorded a 20% m-o-m rise in total traded volume to 4.2 million contracts – an all-time high.

Fair valuation

With a 2% increase in earnings, RHB’s FY2023 earnings are now 12% below consensus.

SGX’s 1-year forward P/E of 22.5x is in line with its historical average P/E, writes Jaiswal.

Its yield of 3.4% is below the STI’s forward yield of 5.1%. We continue to value SGX at 20x P/E applied to a blended forward earnings per share (EPS).

As at 3.40pm, shares in SGX are trading 7 cents lower, or 0.73% down, at $9.47.

See Also: