DBS upgrade report on SGX 

Firing on multiple fronts

• Upgrade to BUY, TP SGD12.80 (14% upside including dividend yield)
• SGX&rsquo s revenue drivers firing on multiple fronts to benefit from volatility in upcoming months
• September 2024 trading volumes for SGX continue to accelerate expect momentum to continue
• MAS current review on market reinvigoration serves as a potential tailwind 

 

September performance continues to demonstrate strong momentum expect momentum to continue into subsequent months.  Trading activity across multiple asset classes continues to accelerate during September 2024, with securities turnover at the highest level since March 2022 at SGD1,447mn, derivatives daily average volume and derivatives traded volume reaching the highest in 4.5 years, and record FX future volumes and OTC FX volume growth. Particularly, FTSE China A50 Index Futures saw exceptional growth of +60% y/y and m/m. October month-to-date, trading volumes on SGX has continued to see continued momentum.

 

Continued volatility in upcoming months to drive trading activity across multiple asset classes, revenue drivers firing on multiple fronts.  We believe market volatility should continue to persist over the following months due to the US presidential elections, China&rsquo s stimulus package and economic outlook, and Middle East tensions, which should benefit SGX. Amidst a backdrop of Fed cuts, we believe more flows towards emerging markets like ASEAN, and yield stocks, will also likely benefit SGX&rsquo s securities trading volumes. 

 

Growth in securities trading activity and derivatives volumes continue to be principal share price drivers for SGX.  SGX&rsquo s share price and trading value for the market are closely related, with a correlation coefficient of ~0.7 from January 2001 till today, as average market trading value translates into commissions and revenues earned for SGX, even as SGX&rsquo s business model has transformed and is less reliant on securities trading revenue today. As of FY24, the securities trading segment accounted for 14% of total revenue. We now anticipate a more favourable trajectory for SDAV going into FY25F. Similarly, we continue to anticipate strong growth in derivatives volumes amidst market volatility.