Analysts raise SGX target price on rich valuations, economic recovery

DBS maintained “hold” on SGX, with a raised target price of $10.20 from $8.40 as it believes valuations are “getting rich” PHOTO: ST FILE

SINGAPORE (THE BUSINESS TIMES) - Analysts have raised their target prices for the Singapore Exchange (SGX) after adjusting their forecasts higher for the bourse operator's financial year 2021-22 earnings.

This came after SGX posted a net profit of $239.8 million for the half year ended Dec 31, 2020, up 12.4 per cent from $213.3 million a year ago. In a bourse filing on Friday, SGX said it saw revenue increases across all three of its businesses: equities; fixed income, currencies and commodities; and data, connectivity and indices.

DBS maintained "hold" on SGX, with a raised target price of $10.20 from $8.40 as it believes valuations are "getting rich". The research team revised its financial year 2021-22 earnings upwards by 1 per cent to 3 per cent on higher revenue assumptions.

CGS-CIMB reiterated its "add" call on the Singapore bourse operator, with a higher target price of $11.61 from $9 on sustained trading volumes in its financial year 2021 forecast. It said SGX's successful migration of its customer base to its FTSE Taiwan futures offering shows promise of executing other initiatives in narrowing the earnings gap left by the MSCI licence expiry.

The CGS-CIMB research team expects equity turnover to sustain over the 2021 financial year given the low rate environment and macro uncertainty, supporting hedging demand. It raised its financial year 2021-23 earnings forecast by about 17 per cent to 19 per cent on higher trading volumes and contributions from Scientific Beta and BidFX.

RHB and Maybank Kim Eng maintained their "buy" call on the stock. RHB raised its target price on SGX to $11.60 from $10.30, while Maybank KE increased its target price to $11.48 from $10.77.

RHB expects trading scenes in both equity and derivative markets to be supported by a recovery in global economies due to the wider availability of vaccines and continued portfolio risk management. It raised its financial year 2021-22 earnings forecast by 4 per cent to 9 per cent on higher securities daily average value assumption.

The RHB research team has also pegged its financial year 2022 earnings per share forecast for SGX to a price-to-earnings ratio of 25 times to reflect its sanguine view on trading activities.

For Maybank KE, higher contract pricing, strong equity market velocity and new product launches should continue to support earnings momentum and keep dividend visibility high.

The research team noted that derivative volumes increased 4 per cent on the year despite the exit of key MSCI contracts. Moreover, newly introduced FTSE contracts seem to be gaining traction.

"SGX's ability to retain liquidity here is a strong indicator of the successful execution of its multi-asset platform," Maybank KE said.

Shares of SGX were trading 0.2 per cent or $0.02 lower at $10.07 as at the midday break on Monday.

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