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Brokers' take: RHB, CGS-CIMB, Phillip Securities maintain 'buy' on SGX

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BROKERS are maintaining “buy” calls on the Singapore Exchange (SGX) after the bourse operator posted stable first-quarter earnings last Friday, with an uptick in its derivative business.

RHB and Phillip Securities are maintaining their "buy" calls on the counter. RHB has a target price of S$8.40, while Phillip Securities is looking at S$9.01.

CGS-CIMB is leaving its “add” rating is unchanged, but with lower target price of S$7.60, pegged to 22.1 times fiscal year 2020 earnings which is 0.5 standard deviation below historical mean.

The SGX had reported a net profit of S$91.1 million for the first quarter ended Sept 30, comparable to S$90.7 million in the year-ago period. In particular, its derivatives revenue was up 21 per cent to S$97.7 million, contributing 47 per cent of total revenue.

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RHB analyst Leng Seng Choon noted that China A50 Index Futures was the star performer in Q1 2019, recording a 40 per cent year-on-year (y-o-y) surge in traded volume and contributing 43 per cent share of derivatives sales. “We forecast FY2019 derivatives average daily contract (DADC) of 821,000 versus Q1 FY2019’s 861,000.”

Similarly, Phillip Securities analyst Tin Min Ying said: “Improvement in volumes came from China A50 futures and FX futures products, which benefited from higher volatility in the underlying market.”

Going forward, continued stock-market volatility driven by the US-China trade conflict and rising interest rates should benefit derivatives turnover, she said.

Likewise, CGS-CIMB analyst Ngoh Yi Sin said a combination of US dollar appreciation, steepening yield curve, increased hedging and flight to quality assets that arose from market volatility and emerging market weakness, underpinned the 17 per cent spike in derivatives volume to 54.2 million contracts, especially for China A50 and the expanded MSCI Net Total Return index futures suite.

However, she said there were few updates for both Nifty and stock connect with Bursa Malaysia were shared during the earnings briefing. Downside risks could stem from increasing regional competition and further equity market weakness.

RHB also warned that key risks to their recommendation include global economic fluctuations and geopolitical developments.