Brokers' take: RHB maintains 'buy' on SGX; CIMB, OCBC upgrade to 'add'

BROKERS are upbeat about prospects for the Singapore Exchange (SGX) after the bourse operator posted strong third-quarter earnings on Friday.

RHB is maintaining its "buy" call on the counter with a target price of S$9, while CIMB has upgraded its rating to "add" from "hold", with a target price of S$8.20.

Likewise, OCBC has upgraded its rating on the counter to "buy", with a fair value estimate of S$8.22 from S$8.16.

Based on a share price of S$7.56, SGX is offering a total return of 12.4 per cent, including a dividend yield of 3.7 per cent, OCBC analysts Carmen Lee and Low Pei Han noted.

As at 10.34am on Monday, shares in SGX were trading 2.2 per cent or 17 Singapore cents higher at S$7.73 apiece.

Year-on-year (y-o-y), SGX's third-quarter net profit rose 21 per cent to S$100 million, as revenue for the three months ended March 31 was up 10 per cent to S$222 million - the highest levels since it was listed in 2000.

Earnings per share came in at 9.4 Singapore cents, up 21 per cent from 7.8 Singapore cents in the year-ago period. An interim dividend of five Singapore cents was declared, unchanged from the same period last year.

SGX's securities daily average traded value (SADV) for the period also stood at S$1.45 billion, up 17 per cent y-o-y. In particular, its derivatives revenue surged by 20 per cent y-o-y, and contributed 41 per cent of total revenue, with the FTSE China A50 Index futures recording a 40 per cent jump, RHB analyst Leng Seng Choon noted.

"Our FY18F SADV remains at S$1.20 billion, while we forecast a stronger FY19 SADV of S$1.39 billion, on the back of bullish investment sentiment," he said. "The strong showing for derivatives could continue, with new SGX India products to be launched in June."

Similarly, CIMB analyst Ngoh Yi Sin believes that SGX remains as a key risk management centre, with the successor of the India Nifty products likely to minimise licensing disruption.

"We expect market volatility to remain as a near-term driver for SGX, while its medium term prospects could benefit from new products and initiatives," she said.

"Apart from increasing year-to-date bond listings, gains in volume market share for FX futures also underscore SGX's efforts to build on its multi-asset offering, and retain its leading market position as a derivatives exchange."

While Ms Ngoh noted that greater traction in new products and synergistic mergers and acquisitions are key potential catalysts, downside risks could stem from rising competition from regional exchanges, and the market returning to risk-off mode.

RHB also warned that key risks to their recommendation include global economic and geo-political developments.