SGX 'lacks near-term catalysts', 3.4% yield 'unexciting' compared to STI: RHB

“The near-term outlook for the cash equities business stays weak, amid moderating expectations of local banks’ earnings.”

The Singapore Exchange’s (SGX) S68 April trading data was a disappointment, says RHB Bank Singapore analyst Shekhar Jaiswal, with declines in both securities daily average value (SDAV) and derivatives daily average volume (DDAV).

“Implied FY2023 ended June SDAV and DDAV (based on data till April) are tracking 2% and 5% below our forecasts,” writes Jaiswal in a May 22 note. “We reiterate our view of a weak outlook for its cash equities business in the near term and maintain our below-street estimates.”

Hence, Jaiswal is staying “neutral” on SGX with an unchanged target price of $9.80. The target price includes an 8% ESG premium to its original $9.10 fair value, based on RHB’s proprietary methodology.

SGX saw slower market activity in April, which the bourse attributes to uncertainties over global interest rates, mixed sentiments on the impact of China’s reopening on domestic consumption and a shorter trading month of just 19 days.

Securities volumes have declined for four straight months. In April, total market securities turnover fell by 26.8% y-o-y and 33.5% m-o-m to $18.61 billion. SDAV fell 23.0% y-o-y and 19% m-o-m to $979 million. “For each month in 2023, the SDAV has now registered a y-o-y decline,” says Jaiswal.

The same month, total derivatives traded volume fell by 14.9% y-o-y and 24.6% m-o-m to 17.7 million contracts. DDAV fell by 11.7% y-o-y and 7.8% m-o-m to 0.96 million contracts.

SGX said the reduced trade in equities and FX could not be offset by strong gains in commodities activities.

Commodity derivatives traded volumes rose 55% y-o-y, led by a 63% y-o-y increase in benchmark iron ore volumes, but total futures traded volumes on FX slid 13% y-o-y.

The equities index futures traded volumes was 24% lower y-o-y while the SGX FTSE China A50 futures volumes fell 27% y-o-y.

Year to date, derivatives traded volumes and DDAV for FY2023 ended June are tracking 3% and 5% above the numbers for the same period in FY2022. That said, the implied FY2023 DDAV, based on data through April, is 4.7% below Jaiswal’s estimate.

SGX lacks near-term catalysts and sports unexciting yields, writes Jaiswal. “While we still see fixed income, FX and commodities businesses as key long-term growth drivers, the near-term outlook for the cash equities business stays weak, especially amid moderating expectations of local banks’ earnings.”

SGX’s stock offers a dismal 3.4% forward dividend yield, “well below” the Straits Times Index’s (STI) 5%, notes Jaiswal. The STI climbed 0.4% m-o-m in April, ending the month with a 1.3% total return and bringing total returns for 2023’s first four months to 2.1%.

“Our FY2023-2024 earnings are 6%-7% below the street. We continue to value SGX by applying 21x P/E to its FY2024 earnings per share (EPS).”

As at 9.07am, shares in SGX are trading 2 cents lower, or 0.21% down, at $9.35.

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