SINGAPORE (March 15): RHB is maintaining its “buy” call on the Singapore Exchange (SGX) with an unchanged target price of S$9.10, even as it lowers its FY17F securities average trading volume (SADV) projections to S$1.19 billion, from S$1.27 billion previously, on weaker than expected volume pick-up in February this year.
In a Wednesday report, analyst Leng Seng Choon notes the bourse’s strength in trading volumes over the past two months, with Feb’s SADV jumping 38% m-o-m. Assuming continued strength for FY18, the research house’s estimation of FY18F SADV remains unchanged at S$1.35 billion.
With the bourse mulling the reintroduction of traders’ lunchtime break, Leng points out the possibility of a reduction of securities market trading hours, as a result — but does not believe this would have a significant impact on the SADV.
“SGX is also enabling companies to seek a general mandate for issuance of rights shares of up to 100% of the share capital, from 50% previously. This would help firms raise funds expediently,” he adds.
The analyst particularly remains hopeful of a surge in the China A50 Index Futures trading volume, although there “has not been any significant volume pick-up thus far” since the Shenzhen-Hong Kong Stock Connect commenced in Dec 2016.
Noting how the China A50 Index Futures surged over 6-8 months in 2Q15, following the start of the Shanghai-Hong Kong Stock connect in Nov 2014, Leng believes there is upside potential, given that 38% of SGX’s Feb 2017 total derivatives trading volume of 12.5 million came from the China A50 Index Futures.
He is therefore forecasting a FY17-18 derivatives average daily contract (DADC) of 0.68-0.78 million.
However, the analyst is projecting 8% lower FY17 net profit of S$356 million on the back of weaker-than-expected SADV pick-up, in addition to reduced assumptions on the DADC.
“Note that SGX’s FY17F dividend yield of 4% is attractive, compared with the sovereign 10-year bond yield of 2.4%... The key risk to our call would be global economic trends,” says Leng.
As at 10.32am, shares of SGX were trading flat at S$7.53.